What are mortgage 'points' and when does paying them make financial sense?

One mortgage point equals 1% of the loan amount. Paying points at closing reduces your interest rate, typically by about 0.25% per point, though the exact reduction varies by lender and market conditions. To evaluate whether buying points makes sense, calculate the break-even point: divide the upfront cost by the monthly savings to find how many months it takes to recoup the cost. If you plan to stay in the home longer than the break-even period (often six to eight years), buying points usually makes financial sense. If you might sell or refinance within a few years, paying points is likely not worth it.