A mortgage point refers to interest paid up front and is equal to one percent of the amount of the mortgage. Thus, on a $100,000 mortgage loan, five points would equate to $5,000.

Paying points can lower the interest on a mortgage. Two points paid might bring the interest rate on a loan down about half of a percent. The difference between paying 6.75% on a thirty year $100,000 loan and paying 6.25% on the same loan is about $30 on the monthly payment and $12,000 over the life of the loan; obviously, the larger the loan amount the more savings on both the monthly payment and the total loan paid. If you can afford to pay points and plan to be in your home for a long time then paying points may be a good idea.

How do you know if you should consider paying points? More on How can I save on mortgage points? How are mortgage points calculated?