A "point" is equal to 1% of the amount of your loan, and the more points you are able (or wish) to pay, the more you can lower your rate. In addition, points may be tax-deductible. Paying points is not a requirement, it's simply an option lenders offer to accommodate their home mortgage customers.

Whether or not you pay points often depends on how long you intend to stay in the home.

If you're planning to sell in a few years, it may make sense to forego paying points and get a higher interest rate.

However, if you plan on staying in your home for a long time, for example more than five years, then it might make sense to pay the points to get a lower interest rate.