Invest Your Rebate or Buy Down Your Rate? The Math

DiscountAgent.com Blog • Buyer Education

By Aaron Peters • Broker / Owner, DiscountAgent.com • August 2026

Updated: August 2026 • 12 min read • Educational content, not financial advice

You just received roughly $8,000 back at closing. You have three realistic options, and the gap between the best and worst outcome is over a quarter of a million dollars.

We previously worked through using a rebate to buy down your mortgage rate. A reader asked the obvious follow-up: what if you invested it in an S&P 500 index fund instead?

So we ran all three scenarios. The answer is genuinely surprising, and one finding complicates the case we made in that earlier article. We are publishing it anyway, because a comparison that only flatters one option is not worth reading.

Before we start: Aaron Peters is a licensed Utah real estate broker, not a financial advisor or registered investment adviser. Nothing here is investment advice or a recommendation to buy any security. Market returns are not guaranteed and past performance does not predict future results. Talk to a fiduciary financial advisor about your situation.

The Three Options

Our scenario: a $655,000 home — the Salt Lake County single-family median — with 20% down, a $524,000 loan at 6.10%, and an approximately $8,188 rebate from a 2.5% buyer agent commission.

Scenario A

Take the cash and invest it

Receive the $8,188 after closing and put it into a broad-market index fund — the kind of thing people mean when they say VOO, VTI, or SPY. Keep the 6.10% mortgage. Your money is liquid and it compounds.

Scenario B

Buy down the rate and enjoy the lower payment

Apply the rebate to about 1.56 discount points, dropping your rate to roughly 5.71% and your payment by about $131 a month. Spend that $131 on ordinary life. This is what most people actually do.

Scenario C

Buy down the rate and invest the monthly savings

Same buydown as B, but every month you move the $131 you are no longer paying the bank into the same index fund. This requires setting up an automatic transfer and never touching it.

The Math, at Two Return Assumptions

The S&P 500 has averaged roughly 10% annually over long periods before inflation. That number is real but it is also an average across decades that included brutal stretches. We show 7% alongside it because a decade of below-average returns is not hypothetical — it has happened repeatedly.

At 10% annual returns

Years Held	A: Invest Rebate	B: Buydown, Spend	C: Buydown + Invest	Winner
3	$10,898	$4,716	$5,473	A
5	$13,186	$7,860	$10,144	A
7	$15,955	$11,004	$15,845	A
10	$21,236	$15,720	$26,835	C
15	$34,201	$23,580	$54,296	C
20	$55,081	$31,440	$99,478	C
30	$142,867	$47,160	$296,125	C

At 7% annual returns

Years Held	A: Invest Rebate	B: Buydown, Spend	C: Buydown + Invest	Winner
3	$10,030	$4,716	$5,231	A
5	$11,483	$7,860	$9,379	A
7	$13,147	$11,004	$14,148	C
10	$16,106	$15,720	$22,674	C
15	$22,590	$23,580	$41,522	C
20	$31,683	$31,440	$68,242	C
30	$62,325	$47,160	$159,817	C

Assumptions: $655,000 purchase, 20% down, $524,000 loan, 6.10% base rate, 0.25% rate reduction per discount point, 2.5% buyer agent commission, 50% rebate. Scenario B is measured as cumulative payment savings in nominal dollars. Scenarios A and C assume returns compound without taxes, fees, or withdrawals. Illustrative only.

Three Findings Worth Sitting With

Finding 1

If you will move within about seven years, invest the cash.

Scenario A wins clearly at three and five years and is still ahead at seven under the 10% assumption. The buydown has a break-even around 5.2 years just to repay its own cost, and a lump sum invested early has a head start that monthly contributions need years to catch. Starter home, likely relocation, growing family — take the cash.

Finding 2

Past roughly seven years, buying down and investing the savings pulls away decisively.

Scenario C overtakes Scenario A at about 85 months at a 10% return, and about 77 months at 7%. From there the gap widens fast — by year 30, C reaches roughly $296,000 against $143,000 for A. The reason is that the buydown functions as a very high-return investment if you hold to maturity, and then you are compounding its output on top.

Finding 3 • The Uncomfortable One

Buying down the rate and spending the savings never beats investing the cash — at any point in 30 years.

Under the 10% assumption, Scenario B never catches Scenario A. Not at year 10, not at year 20, not at year 30, where B lands at $47,160 against A at $142,867. At 7% returns B eventually edges ahead, but not until roughly year 11.

This complicates our earlier article. That piece compared a buydown against taking cash and spending it, and the buydown won convincingly. Against cash that is actually invested, the buydown alone does not win. It wins only when paired with the discipline to invest what it frees up.

Which One Fits You

Two questions decide this, and neither is about the market.

Question 1: How long will you own this home?

Be honest rather than aspirational. Under seven years, the buydown does not have time to work. Over seven, it does. If you might refinance when rates fall, treat that like moving — a refinance erases the points you bought.

Question 2: Will you genuinely invest the monthly savings?

Not “would I like to” — will you set up an automatic transfer on day one and leave it alone for decades? If the honest answer is no, you are in Scenario B, and Scenario B loses to simply investing the rebate.

Choose A — invest the cash

Moving or refinancing within seven years • you want liquidity • you are confident you will invest a lump sum but not a monthly transfer • your emergency fund is thin

Choose C — buydown plus invest

Long-term home • you automate savings already • you want a lower required payment as a floor • you will not be tempted to raid a brokerage account

Choose B anyway — and that can be fine

You are stretched on payment • a lower monthly obligation helps you qualify or sleep • you value certainty over expected value. A guaranteed smaller payment has real worth that a spreadsheet does not capture.

These Are Not Equally Certain Outcomes

Every table above puts three numbers side by side as though they carry the same confidence. They do not, and this is the most important caveat in the article.

The buydown savings are contractual

Once you buy the points and close, your rate is your rate. The $131 per month is written into your note. The only risks are that you sell or refinance early — both within your control.

The investment returns are not

A 10% average is a long-run historical figure, not a promise. Markets have gone a decade with essentially flat returns. Sequence matters: a severe drop in your first few years does lasting damage even if the long-run average recovers.

There is a reasonable way to think about this. Buying down a 6.10% mortgage produces a guaranteed return in the same neighborhood as your mortgage rate. Investing offers a higher expected return with real volatility. Choosing between them is the classic question of whether to pay down debt or invest, and the honest answer has always been that it depends on your rate, your timeline, and how you sleep.

Three practical notes the tables ignore: investment gains are taxable when realized, mortgage interest may be deductible if you itemize, and neither table accounts for fees. All three move the numbers, none reverse the shape of the finding.

FAQ

It depends on how long you will own the home. Under roughly seven years, investing the cash comes out ahead because the buydown needs about 5.2 years just to repay its cost. Past seven years, buying down and investing the monthly savings pulls ahead and keeps widening. This is educational, not financial advice.

Yes, once it is paid to you after closing it is your money. Where your lender permits the rebate to be paid to you directly rather than applied as a closing credit, there is no restriction on what you do with it afterward. Note that a rebate cannot be applied to your down payment under federal lending guidelines. How rebates work in Utah.

Because after the roughly 5.2-year break-even, every remaining month of savings is pure return on money you already recovered. Held to maturity, discount points produce a high effective return — and if you invest the freed-up cash flow on top of that, you are compounding the buydown’s output rather than just collecting it. The entire advantage depends on holding the loan.

Then you would likely have done better simply investing the rebate. At a 10% return assumption, buying down and spending the savings never overtakes investing the lump sum across a full 30 years. At 7% it does, but not until around year 11. If you will not invest the savings, that is a strong argument for taking the cash instead.

No. The buydown savings are contractual once you close — your rate is fixed in the note. The investment figures are projections based on historical average returns that are not promises. Markets have delivered flat or negative returns over multi-year stretches. Taxes and fees are also excluded from these tables.

The rebate is treated federally as an adjustment to your purchase price rather than income, so it is not taxed when you receive it. What you earn after investing it is a separate matter — investment gains are generally taxable when realized. Confirm both with a tax professional. More on Utah rebate rules and tax treatment.

Contact DiscountAgent.com before you tour homes or visit a builder. Call or text 801-243-8900 or email Aaron@DiscountAgent.com. The rebate is written into your buyer representation agreement at the start and disclosed to your lender. Decide how to deploy it before closing, not after.

Important Disclaimer

This article is educational content about real estate transaction economics. It is not investment, financial, legal, or tax advice, and it is not a recommendation to buy or sell any security or to pursue any particular strategy. Aaron Peters is a licensed Utah real estate broker, not a financial advisor, registered investment adviser, or tax professional. Index funds and ETFs are mentioned only as widely understood examples; no specific fund is endorsed.

Investment returns shown are hypothetical illustrations based on historical long-run averages. They are not guarantees or predictions. Actual returns vary and you can lose money, including principal. Past performance does not indicate future results. Figures exclude taxes, fees, and inflation. Consult a fiduciary financial advisor and a tax professional before making decisions about your money.

DiscountAgent.com is not a real estate brokerage. It is the marketing website of Aaron Peters, a licensed Utah real estate agent. Services are provided through NetLogix Realty, License #6390407-AB00. Commission rates are negotiable and are not set by law. Utah is a non-disclosure state; figures shown are approximate.

None of this matters if you never get the rebate. Most Utah buyers do not, because their agent does not offer one and they never think to ask. Eight thousand dollars deployed thoughtfully can become somewhere between $60,000 and $296,000 over thirty years. Eight thousand dollars you never received becomes nothing.

Call or text 801-243-8900 or email Aaron@DiscountAgent.com before you tour your first home.

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Rebate Details

Invest Your Commission Rebate or Buy Down Your Rate? We Ran the Numbers