Discount points are prepaid interest: you hand the lender extra cash at closing, and in exchange they shave your interest rate. One point costs 1% of the loan amount and typically buys a rate reduction of a fraction of a percentage point — the exact discount varies by lender and market.
The whole decision comes down to a break-even calculation. Divide the cost of the points by the monthly payment savings, and you get the number of months until the upfront cost pays for itself. Keep the loan longer than that, and the points were a good buy; sell or refinance sooner, and you paid for a discount you never fully collected.
That makes points a bet on how long you'll stay. Planning to be in the house for the long haul with no refinance in sight? Points can quietly save you a lot. Expecting to move in a few years? Skip them and keep the cash.
Run both versions of the loan through the mortgage calculator and compare total costs — and for worked examples and the fine print (including negative points, or lender credits), see mortgage points explained.