When obtaining a mortgage loan on your principal residence or your second residence and you refinance, the "Points" charges must be deducted over the life of the mortgage. Example: Points charged total $1,200. On a 30 year mortgage, the deduction will be $40.00 per year ($1,200/30). If you had a 10 year balloon, the deduction would be $120 per year. However, if the points are paid in cash on closing of a mortgage to acquire the property and are reasonable and normal to the geographic area, you can deduct the entire amount that year. *Points are usually used to reduce the mortgage interest rate. No points -- a slightly higher mortgage rate. Maybe it would be better to pay the higher interest rate that will be completely tax deductible. The deduction reduces the effective interest rate and could be more beneficial.