A Mortgage Point is 1/8th (.125) of percent of interest on your home loan.
Here is the definition of a Mortgage Point from Wikipedia:
Points, sometimes also called a "discount point", are a form of pre-paid interest. One point equals one percent of the loan amount. By charging a borrower points, a lender effectively increases the yield on the loan above the amount of the stated interest rate. Borrowers can offer to pay a lender points as a method to reduce the interest rate on the loan, thus obtaining a lower monthly payment in exchange for this up-front payment. For each point purchased, the loan rate is typically reduced by 1/8% (0.125).[1]
Paying Points represent a calculated gamble on the part of the buyer. There will be a specific point in the timeline of the loan where the money spent to buy down the interest rate will be equal to the money saved by making reduced loan payments resulting from the lower interest rate on the loan.
Selling the property or refinancing prior to this break-even point will result in a net financial loss for the buyer while keeping the loan for longer than this break-even point will result in a net financial savings for the buyer. The longer you keep the property financed under the loan with purchased points, the more the money spent on the points will pay off. Accordingly, if the intention is to buy and sell the property or refinance in a rapid fashion, buying points is actually going to end up costing more than just paying the loan at the higher interest rate.
Pay Down the Loan
There is a great point made in this definition. A point is prepaid interest. For tax purposes if you pay the points you have to amortize them over the life of the loan. In most cases you are much better off using the money you were going to pay points with to pay down the balance of the loan.