Once you've decided on the points-or-no-points issue, there's still the term of the loan to consider. When determining what duration is best for you, consider the difference in interest rates and the amount of your monthly payments. If you think rates are as low as they're likely to go and you plan to stay in your home for a while, most experts suggest a 15-, 20- or 30-year loan.
Payments on a shorter loan may not be as daunting as you think. If you're comparing a 30-year loan at 8 percent to a 15-year, 6 percent loan, you'll be increasing your payments not by half but by about one-third while halving the length of your mortgage. If the idea of a big fixed monthly expense scares you silly, a longer-term mortgage makes sense, if not dollars. After all, you can always make additional principal payments to shorten the length of your 30-year loan, but you can't stretch out payments on a 15-year mortgage. Experts advise exercising caution if you're considering a short-term variable loan because you plan to move in a few years. Rates are low now, but if you stay longer than you planned, you could be in for a shock when your mortgage rate resets or when you look for permanent financing later.
Recently refinanced and don't think it's worth the hassle of doing all that paperwork again? Consider this: If you invested $200,000 in a bank and the one across the street offered you 1 percent more interest, would you consider moving your money? Of course you would, depending on what the move would cost. Figure out how long it would take to recoup the costs of the loan before you rule out refinancing again. Lenders are competing for qualified buyers, so take advantage of their largess . . . and today's low rates.
Before shopping for loans, consider one more option: staying put. Your current mortgage holder probably won't require a credit check, land survey or title search, and this can save you money on closing costs.