What are Points?
Points are up front mortgage fees paid on a loan. For the most part, in my opinion and that of many other Professionals, points are unnecessary fees and serve no purpose in the transaction other than the Mortgage Lender/Broker making more money at your expense. More than 95% of all my loans have no points.  Only on rare occasions have I ever charged points.  Below are the occasions where points will be charged.

Lower Interest Rates
If you want an interest rate that is much lower than normal or you need a lower rate to qualify then points may need to be charged. Why?

Most rates have what is called a, "Yield-Spread," (built-in compensation from the lender to the Mortgage Lender/Broker based on the interest rate). Once a rate goes lower than any yield-spread being offered points will be charged. Under most circumstances you should expect a mortgage to be offered with no points. If they are being charged you need to speak up and ask why.

Points and Commercial Real Estate
It is usual and customary for a 1/2 to a full point to be charged on such mortgages because of the way such are structured.

Points and Sub-Prime Mortgage
Many Sub-Prime Lenders do not offer compensation to the Loan Originator in terms of yield spread. In such conditions, points will be charged. Also, in order to qualify a borrower it may became necessary to lower the rate to the point where there is no yield spread. Again, points need to be charged for compensation.

Points and Labor Intensive-Problem Loans
If a loan takes weeks to months to complete because of a Bankruptcy, repairing credit, dealing with divorce issues etc., then it is expected that extra compensation via points will be charged.

In a refinance transaction, points must be amortized over the life of the loan. For example, on a 30 year loan, you can deduct 1/30th of the points paid each year. If you refinance for a second time, however, you may be able to deduct the remaining unamortized points in the year you refinance the loan. Consult your tax advisor for more information.