When shopping for a mortgage loan, smart borrowers will not rest until they locate the best loan package possible. Getting a low interest rate on a home loan is very beneficial. Aside from saving money on the monthly mortgage payment, borrowers will also save money during the life of the home loan. Many factors contribute to acquiring a low rate. Naturally, the borrower's FICO score is a huge determining factor. Homebuyers who run the risk of receiving a high interest rate may choose to pay points, which will lower their mortgage rate.

If a homebuyer opts to pay points on their mortgage loan, they will pay a free equal to a percentage of their mortgage upfront. One point is equivalent to one percentage point. Borrowers approved for a high mortgage rate, perhaps 8% may choose to pay two points for a rate of 7%. In this instance, paying points may be the only way a borrower can qualify for a particular loan amount. If borrowing $150,000 and paying two points, the borrower would pay $3,000 upfront. The cost is included with the closing fees.

Before paying points to lower a mortgage rate, borrowers must first determine how long they plan to live in the home. The average homeowner moves every five to seven years. Those who only intend on remaining in their properties for a few years - less than five, will not benefit from paying points. On the other hand, if planning on living in the home for the long term, the borrower can save tremendously.

If acquiring a low mortgage rate is a primary concern, and the buyer plans on moving within five years, they might consider other options which equal lower payments during the initial years. With an adjustable rate mortgage, borrowers can choose an option in which the monthly payments remain the same for the first 3, 5, or 7 years. When the payment is scheduled to adjust, the borrower may choose to remain in the home if rates are low. If rates rise, the borrower may choose to refinance or sell the property. Sometimes, refinancing is not an option because of high prepayment penalties.