A point is one-percent of the mortgage amount. A lender will quote a lower-rate mortgage with a certain number of points. There is not a standard amount; it is an individual company policy.
A simple comparison of the two alternatives based on the borrower's ability to pay the points and whether the borrower will stay in the home long enough to recapture the costs will help to determine which loan will provide the cheapest cost of housing.
In the example below, two choices are compared; a 4.25% loan with no points vs. a 4.00% loan with one point. If the buyer stays in the home at least 69 months, they will recover the $3,150 cost for the point on the lower interest rate.
If the purchaser stays ten years, he'll save two thousand three hundred dollars over the cost of the point. A less obvious advantage will be realized because the unpaid balance on the lower interest rate loan will results in an additional $2,076 savings.
For more information about the deductibility of points, see IRS Publication 936 and if you're refinancing a home, there is a section specifically on that. For advice on your specific situation, contact your tax professional.