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have a slightly higher interest rate, but because they don't change, the can save money over the long term. Fixed rate loans can be refinanced, typically after two years from origination, to a lower interest rate if the opportunity presents itself.

Adjustable Interest Rate Mortgage Loans. Adjustable Interest Rate loans or ARMs, feature lower interest rates early in the life of the loan, but they are indexed and adjusted to changes in government treasury rates or some other figure. Your monthly mortgage payment is mostly interest for half its life. Since interest constitutes the largest portion of your payment, an increased interest rate can jack up your mortgage payment significantly.

Interest rate adjustments can be severe, and not work in your favor as the government will require banks to raise their rates in order to offset the effects of inflation. Be careful when obtaining an ARM, as the proliferation and creative variation of ARMs were a major contributing factor to the last housing bubble. Be sure to check for how the rate is indexed and if there is a cap on the amount of increase in interest a lender can charge.

Points. Points, or a discount, are fees charged by lenders, typically 1 percent of the amount of the loan value depending on the size of the down payment. Points can be negotiated with the lender as a trade off for a lower interest rate. The outcome will affect your monthly mortgage payment, so you can save money by choosing a lender that charges fewer, or no points.

Closing Costs. Closing costs, also known as settlement costs or fees, are expenses paid by either the home buyer or the seller that must be paid before the title to the home is transferred to the new owner. Closing costs can be considerable and the amount depends on a number of factors including lender fees and location Lenders are required to disclose all closing costs to the borrower, so it makes sense to negotiate with the lender on different fees. Some fees are paid by either the buyer or the seller, depending upon the terms and conditions stipulated in the purchase agreement.

Home buyers will benefit the most by comparing all the various charges and fees required by different lenders before committing to the long-term financial contract called a mortgage. Homebuyers can save money by taking control of financial decision making, by not allowing bankers, real estate agents, or brokers to decide how to spend their hard earned money for many years to come.

Learn more about this author, Francis Jock.
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