Interest rates are once again plummeting and many people are trying to get first mortgages or refinance their existing mortgage. But in looking at a mortgage, especially in trying to determine if it make sense to refinance, interest rates are only part of the total picture. While interest rates will affect what your monthly payment will be for the life of the loan, to figure out the total cost of the loan, you must also incorporate the cost of getting the loan. This cost, sometimes called closing costs, or loan origination fees, is generally simply called points.

Points are all the fees associated with creating the loan and are generally due at the time you close on the loan. These fees are typically referred to as points and are a percentage of the total loan. A loan with 3 points will cost approximately 3% of the loan amount. There is usually a trade-off between interest rates and points. A lower interest rate generally comes with higher points. A loan with little or no points will come at a higher interest rate. The lender is going to get paid this money one way or the other, either up front, or spread out over the life of the loan.

In looking for and negotiating a home loan, you will need to decide which makes the most sense for you. If you need to keep the up front costs low, have the points rolled into the loan amount. On the other hand, if you can afford to pay the points up front, the interest rate will be lower, and the total cost of the mortgage should be also.