Discount points allow you to lower your interest rate. They are essentially prepaid interest with each point equaling 1% of the total loan amount. Generally, for each point paid on a 30-year mortgage, the interest rate is reduced by 1/6 (or.16) of a percentage point. When shopping for a loan ask lenders for an interest rate with 0 points and then see how much the rate decreases with each point paid. Discount points are a good way to reduce your monthly interest if you plan to stay in a home for a long period of time. Points are tax deductible when you purchase a home and depending on market conditions you may be able to negotiate with the seller to help pay for the lower rate.