You are asking some great questions.
Mortgage discount points are paid at closing and they reduce the interest rate on the loan. The amount reduced varies, depending on what the bank is offering at that time. A 'normal' discount on the interest rate is 1/4% for one point, or one percent of the loan.
Discount Point $2,000
Interest rate Discount 1/4%
Rate goes from 3.5% to 3.25%
This sames the borrower about $50 a month on payments. At $50 a month, the borrower is saving $600 a year. At $600 a year savings, it would take a little more than 3 years to break even.
When is it a good idea to pay Discount Points? When you are going to be in the house longer than the break even point.
Discount points are tax deductible. If you are asking for some closing costs from the Seller and planning on paying discount points, be sure that you pay the discount points and they pay the other costs so that you can get the tax deduction.
Hope this helps. Let us know if we can help you with anything else.
Sharon H. Alters, GRI
Coldwell Banker Vanguard