Depending on the deal you negotiate, either the buyer or the seller may pay the points. The Internal Revenue Service treats these two situations slightly differently. Buyer-Paid Points Points paid to obtain a new mortgage are fully deductible in the year they are paid by the borrower. If you pay points to refinance a loan, generally they are not deductible in full in the year they are paid. Rather, the IRS requires that you allocate the points by the number of years of your mortgage loan.
Many people trade off points for interest rates.
Generally speaking, each point that you pay is the equivalent of one-eighth of a percentage point in interest. But you have to do the numbers to determine the break-even point. To do this, compare the monthly payment for both interest rates. Take the difference between these two rates and divide that number into the amount of points you pay. The result is the number of months it will take you to break even.