Each discount point is equal to one percent of the loan amount. Discount points are paid to obtain a lower rate. Whether you should pay discount points depends on your tax situation and how long you expect to be in the property. To calculate how many months it roughly takes to “break even” on the amount paid for points, divide the difference in points ($dollar amount in cost) by the difference in monthly payment.
There may also be tax advantages to paying points. For most taxpayers, points paid on purchase loan transactions are tax deductible in the year the home is purchased and points paid on refinance transactions are tax deductible over the life of the loan. Tax consequences vary so we encourage you to consult your tax advisor.