How do you "buy" a better rate?
Do you plan on keeping your loan for a while? Then it may make sense to "buy" a lower interest rate by paying one or more "points".
Even if you are unsure of how long you plan to keep your mortgage before you move or refinance, paying points now for a lower rate may make sense. A point equals one percent (1%) of the total loan amount, it is an up-front fee that lowers your monthly interest rate and total interest due over the life of the loan. A one point loan will have a lower interest rate than a no point loan. Basically, when you pay points you pay money now instead of extending costs throughout the life of the loan.
There are a variety of rate and point combinations available. When you look at different loan programs, don't just look at the rate -- compare the whole package. Federal law requires lenders to publish their loans Annual Percentage Rate, or A.P.R.. The A.P.R. is a tool used to compare different terms offered and points.