Cost

• Each mortgage point costs 1 percent of the amount you are borrowing. For example, if your mortgage was for $280,000, one point would cost $2,800 and two points would cost $5,600. According to Investopedia, each point you pay will lower the interest rate on your mortgage by about one-quarter percent.
  
  

Time Frame

• Points last as long as you keep the mortgage. For example, if you take out a 30-year mortgage and take the entire term to pay it off, the points will lower your interest rate for the whole 30 years. However, if after two years you decide to move or refinance, those points will not carry over. The amount of money that you save by paying points is largely dependent on how long you keep the loan.
  
  

Considerations

• To determine whether you should pay points, consult with your lender about how much the points paid will save you per month. Then divide the total cost of the points by the monthly savings to find out how long you would have to keep the mortgage to break even. For example, if paying $6,120 would save you $99 on each monthly payment, you would divide $6,120 by $99 to find that it would take 62 months to break even. If you plan to move or refinance before then, do not pay for points.
  
  

Warning

• When you agree to pay points, you must pay them when you take out the loan. If you do not have reserve funds left over from your down payment and other mortgage closing costs, it does not make sense to borrow money at a higher interest rate, such as on a credit card, to pay for points on your mortgage. In addition, if you cannot put down a large enough down payment to avoid private mortgage insurance payments, you are better off using the money to maximize your down payment.
  
  

Tax Deductions

• The Internal Revenue Service allows you to deduct the cost of the mortgage points from your taxes if you elect to itemize your deductions. If you are taking out a first mortgage, the entire cost is deductible in the year that you pay them. If you are refinancing your mortgage, the points are deductible over the life of the mortgage. For example, if you refinance for a 20-year term and pay $4,000 in points, you could deduct $200 each year.