Points, or discount points, in the mortgage industry are an upfront fee that you pay to lower your mortgage interest rate. One point equals one percent of the loan amount, so one point of a 200,000 loan would be $2,000.
For each point you pay, your rate will lower by 0.25%. A quarter point may not sound like much but it could save you hundreds of dollars in interest annually. Determining if you should pay down your interest rate with discount points will be based on your personal finances and whether you can afford to make an upfront payment, as well as how long you plan to stay in the home.
If you don’t plan on staying in the home for at least five years it may not be wise to pay the upfront fee as you could end up losing money. Depending on the amount of points you pay it can take up to 3-5 years to get your investment back, therefore if you don’t plan on staying in the home for that long you may not want to pay points.