How do you "Buy" a better rate?

Do you plan on keeping your loan for a while? Then it may make sense to "buy" a lower interest rate by paying one or more "points."

Most customers say they want the LOWEST rate when applying for a loan. This is common misconception amongst consumers. What they really want usually is the Lowest rates available without any additional cost to BUY the rate down. An example of this would look something like this. Say you want the lowest rate on a 30 yr Fixed loan. The lowest rate may be 3% but the lowest rate with NO points may be 4%. Simply put the lower rate is available but it will cost you points to Buy it down. The lowest rate is not always  the best option but points may be right  for you depending on your specific financial situation. Even if you're unsure of how long you plan to keep your mortgage before you move or refinance, paying points now for a lower rate may make sense. For example, do you have a high-paying job now but you think you might change careers in the next few years? We can help you sort it out. It's part of our goal to find you the right loan for your means and future.

A point -- which equals one percent (1%) of the total loan amount -- is an up-front fee paid at closing as part of your loan that lowers your annual interest rate and total interest due over the life of your loan. So, a one point loan will have a lower interest rate than a no point loan. Basically, when you pay points you trade off paying money later in favor of paying money now. You can pay fractions of points, meaning there are a lot of points packages that can make a loan's terms more favorable if that's what's right for you.

There are a variety of rate and point combinations available. When you look at different loan programs, don't look just at the rate -- compare the whole package. Federal law requires lenders to publish their loans' Annual Percentage Rate, or A.P.R. The A.P.R. is a tool used to compare different terms, offered rates, and points. A.P.R. is only a valid tool if ALL the factors associated with it's calculation are considered and disclosed properly.