QHow Do I Find The Least Costly Mortgage? Does It Make Sense To Pay More Points For A Lower Interest Rate?
AYou can save real money if you carefully shop for a mortgage. Everything else being equal, even a one-quarter percentage point difference in interest rates can mean savings of thousands of dollars over the life of a mortgage. A popular option recently has been "interest-only" loans, which allow you to pay only the interest amount each month -- not any principal -- for the first ten years of the loan. This can lower your initial monthly payments significantly, allowing you to afford more house. Most interest-only loans are adjustable, but it is possible to find fixed rate interest-only loans too. In addition to comparing interest rates, there are many types of fees -- and fee amounts -- associated with getting a mortgage, including loan application fees, credit check fees, private mortgage insurance (if you're making a low down payment), and points. Since points comprise the largest part of lender fees, it's important to understand how they work: One point is 1% of the loan principal. Thus, your fee for borrowing $250,000 at two points is $5,000. There is normally a direct relationship between the number of points lenders charge and the interest rates they quote for the same type of mortgage, such as a fixed rate. The more points you pay, the lower your rate of interest, and vice versa.