It's pre-paid interest.  Paying points usually lowers various costs of the loan.  I have never found them to be of value for my financial situation and long-term goals.

It is all about yield! You can pay me now or pay me later. Think of it as prepaid interest. For most, it is not worth it since they will not be in the house long enough to benefit.

Talking with a good loan officer can produce some excellent answers and they can probably give you examples & compare scenarios. S/He can also show if paying the points are worth it, for each individual scenario/situation.

That being said, Ryan Huggins - Thousand Oaks, CA gave you a pretty accurate, quick explanation. 

Every lender offers different programs.  I would talk specifically to the lender and find out what is available for the particular loan program you (or your buyer) is looking for.

Contact an experienced, local lender and have a good conversation Mercedes. Wish you the best!

This reminds of when they have a retail product for sale and then they have upgrades that cost more. Is the upgrade worth the extra money is the thought. On points, the loan officer has to get paid. On the loan itself, that is what it costs for that loan which is shoppable. Does the loan suit your immediate needs? If so, go for it. Everything in Real Estate is negotiable

That's a great question for one of our AR lenders to address. Or have a discussion with a lender.

You need to have a session with your trusted local mortgage loan officer. 

Your question is best answered by a lender, Mercedes. With rates rising, paying points may again be a "thing".

This is an excellent question for a lender. They will explain points and when it might make sense to pay points. 

All the best to you!

"Origination points" are a broad term - some states require lenders to include ALL of their up front costs as "origination", meaning fees like 'underwriting, processing, etc' could be rolled into a broad "points" fee.

However, "discount points" specifically are usually what's being asked about when thinking "when is it worth it".  Discount points always result in a lower rate - so it's worth it when the loan is held onto long enough for the lower monthly payments resulting from the lower rate offset the up front cost of the discount points : )

Imagine you were starting a business and I offered to sell you a piece of machinery for $4000.  If you buy it, you'll make $100 per month.  If you were deciding on buying that piece of machinery, you would compute that it would take you 40 months to break-even on your up-front investment in order to THEN start making $100 per month in profit. 

In this case, the piece of machinery is a "lower-than-market interest rate" (which would save the Borrower both on monthly payments and ongoing finance charges).  The "Origination Points" are the cost to buy that machine.

In this example, will you keep the "machine" (loan) for more than 40 months? If so, there is a case to be made for paying the extra costs up front.

A way for the lender to get a chunk of money up front, and pay the commission to the loan broker.

You need to examine your situation and do the math to determine whether it is better to pay a few points up front or pay a higher rate later.  Much will depend on how long you will be needing the loan.

Here is an example of discount points: Let's say that today you need a $400000 loan and the rate is 5 with zero points payment is $2089 for 30 years or  4.75 with one point which is $4000 extra cost but payment is $2174 for 30 years.  Eighty five dollars difference. It will take 47 months to break even. If you plan to stay five years you will save a little.                Some lenders charge a one percent origination fee just for the set up. This is a flat fee that can sometimes be lowered by increasing the rate and getting a credit.  Other lenders may not offer lender credits in points or origination or discount - it depends on the company and how volatile rates are on a given day.  Generally it is not work to pay points as it takes time to see savings and you then are betting rates go down and you refinance. The points are not refundable.                                                  Points are prepaid interest and may be deductible as home mortgage interest, if you itemize deductions on Schedule A and if the loan is under $750000 and a few other IRS rules- check with your CPA.  If you qualify under IRS rules to deduct all of the interest on your mortgage, you may be able to deduct all of the points paid.

Points usually don't make sense, but you need to do some calculating to figure that out. Hope you don't live in Florida...

I'd ask Jason E. Gordon 

Speak with a preferred lender. It all depends on the individuals situation.

Guess I got here late. Seems you have received the answer to your question

You need to know how long you expect to own the home.  Loan fees are good if they allow you the lowest interest rate and you plan to be in the home long enough to save over the long run.