Paying discount points is a way to lower your interest rate (and subsequently your monthly mortgage payments). It's essentially a way of pre-paying your loan's interest up front. The cost of points varies by loan amount, with one point equaling 1 percent of the loan's initial balance.
Paying points can save buyers significantly on their interest, but only if they stay in the home long enough. Short-term buyers generally do not save — or may even lose money — by paying points up front. To determine if paying points is smart in your case, try calculating the break-even point: [Points Cost] / [Monthly Payment Savings] = [Months Until Break-even]. If you plan to stay in the home at least that long, then paying points up front can be a money-saving move.