Selecting an Interest Rate The first reaction a lot of people have to this step is to say "the lowest one!" There are other factors to consider and the lowest interest rate may not always be the best way to go. The best interest rate is the lowest interest rate - True or False? Life would be easier if the answer was "True." Lenders would only have one interest rate to talk about for each loan program. But it's not that simple. Here's the situation: lenders lend money just like other businesses sell other products. They have to cover the cost of the product, including: Cost of the money lent Employment costs Overhead Profit Not very mysterious, is it? Lenders have a couple of different ways to earn money: Fees Points Points can be described in two categories, depending on your local market -- origination and discount. Origination points are meant to cover the cost of originating the loan. Discount points are used to reduce the interest rate on the loan. The more discount points you pay, the lower your interest rate will be. That's why lenders have so many pricing options to choose from. Pay points when: The seller is willing to pay them The builder is willing to pay them Your company will pay them (relocation packages) You plan on keeping the property (ask your Loan Officer for a break even point) You need the lowest interest rate for qualifying purposes Avoid paying points when: You're short on cash reserves or cash to close You don't intend on keeping the property for more than a few years You think you might refinance within a short time You need all the cash you have to pay off bills to qualify While this is an important decision to make, you can always change your mind later on, when your loan is in process. Just let us know in plenty of time so it can make the appropriate changes to your application.