Sulumits Retsambew : The rule is to always seek the lowest interest rate, right? So while it makes sense to get a low interest rate as possible on a mortgage, in May there be good reasons to avoid going to extremes to obtain a minimum rate.

Some people choose to pay points to get a lower mortgage rate. A point is calculated as 1 percentage point of the loan amount in a $ 200,000 mortgage, one point is $ 2000. Normally, the payment of an item will reduce the interest rate in quarter per cent (which varies with different donors). Therefore, a decrease of interest of 6.5% to 6%, paying two points or, in our example, an additional $ 4000.

There are other loan options for buyers who want a lower interest rate. An option is a variable rate loan, which has a lower interest rate initially, but during May increased the duration of the loan, with national rates.

All options have a reduction in the interest cost associated with them is a cost in advance, including payments for items closing or delay costs, such as greater long-term interest rate in the hour.

When it comes to deciding whether it is worth pursuing a lower interest rate, reflect the value they receive from interest payments. What? Well, as much as we pay interest, there is no reason for the payment, you can take a tax deduction on the annual interest on your mortgage.

Returning to our example, if you have a mortgage of $ 200,000 and pay 6.5% of your monthly payment is $ 1264.14 and interest paid during the first year is $ 12934.18. Now, if you take the same $ 200,000 and pay 6.0%, your monthly payment is $ 1199.10 and interest of its first year is $ 11933.19.

The lower interest rate means you pay less than $ 65.04 per month (less than $ 780.48 for the year). If you paid $ 4,000 in points that will take you just over 5 years to recover their money in the payment of savings.

Your tax deduction will be less. Your deduction will be less than $ 1000, it has the higher interest rate. Thus, in addition to the outside of the pocket costs for items, also lose some of their ability to deduct.

Of course, during the term of the loan unless you pay less interest with the lower amount. If we consider that to pay a lower interest rate should take into account a number of factors: how long have you been in the house, you want a lower payment or if you want to save money each month, pay less tax? It is a question of priorities and what works best for you. Ultimately, you have an interest in interest. Take time to carefully consider their options.