Have you ever analyzed the difference in monthly payments between mortgages with different interest rates?

Everyone wants to get the lowest interest rate possible. Savvy borrowers will shop around, contact different mortgage lenders and try to negotiate for the best terms.

But do they really do the numbers? Do they look at the actual monthly payment that each loan will require?

For example, what do you think is better for a $200,000 loan: a 6 percent interest rate with one point or a 6.125 rate with no points? Keep in mind that a point is one percent of the amount loan -- or in our example $2,000.

The monthly payment to amortize a $200,000 loan over 30 years at 6 percent will cost you $1199.11. (This is only for principal and interest; we are not including taxes and insurance in this example.) The monthly payment for that same loan at 6.125 percent will be $1215.23 -- or $16.12 more a month.

But in order to get that lower rate, you will have to pay the lender the one point in the amount of $2,000. It will take you almost 124 months (over 10 years) in order to break even and reap the benefits of that lower rate ($2,000/16.12 = 124.07 months).

How long do you plan to stay in your new home? Do you have better use for the $2,000 than merely to pay it to a mortgage lender so as to give you a slightly lower mortgage interest rate?

These are questions all potential home buyers should consider when shopping for a mortgage.

Published: January 24, 2005

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Author of the weekly Housing Counsel column with The Washington Post for nearly 30 years, Benny Kass is the senior partner with the Washington, DC law firm of Kass, Mitek & Kass, PLLC and a specialist in such real estate legal areas as commercial and residential financing, closings, foreclosures and workouts. Mr. Kass is a Charter Member of the College of Community Association Attorneys, and has written extensively about community association issues. In addition, he is a life member of the National Conference of Commissioners on Uniform State Laws. In this capacity, he has been involved in the development of almost all of the Commission’s real estate laws, including the Uniform Common Interest Ownership Act which has been adopted in many states.