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Points - Buying Down The Rates
Most lenders offer the option to buy the rate down - typically by a full 1%. The cost to buy down the rate will be shown in the spreadsheet of offers - it is usually 1 Point or 1 percent of the loan per every 0.25% interest rate buy-down.
Buying points is basically like taking another loan within the current loan - since our monthly savings eventually pay off the cost, and from the break-even point we start saving every month for the rest of the life of the loan.
The cost to buy down the rate to the maximum is 4 points, which in a $100,000 loan is $4000. We are going to calculate the monthly savings, divide it by the cost, and see when we are paying that back, and how much we will save for the life of the loan.

Points Usage Example

Let’s demonstrate when buying down the rate makes sense in the following scenario:
Loan size: $100,000 
Initial mortgage rate: %6  
Lowest possible rate after points buy down: 5%  
Cost to buy down the rate to the maximum - 4 points - which is 4% of the loan:$4000

6% Interest Mortgage Costs

Principal + Interest Monthly Payment: $599.55
Total Interest for the life of the loan: $115,389.19   
Total of all payments: $215,838.19
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5% Interest Mortgage Costs

Principal + Interest Monthly Payment: $536.82
Total Interest for the life of the loan: $93.255.78   
Total of all payments: $193,255.78
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How many years to break even?

Monthly savings with the lower rate: $ 599.55 - 536.82 = $62.73
How many months to pay back the $4000: $4000/$62.73 = 63.76 months, which is 5.31 years to break even.   
Total Interest Saved: $115,838.19 - $93,255.78 = $22,582.41