Mortgage interest rates are determined by current market conditions. After negotiating the terms of the loan you can still reduce your interest rates by offering to pay points (discussed earlier) up front. One point is equal to one percent of the total amount you borrow. Paying points up front will reduce the lender’s risk and could be a tool in negotiating lower rates.

Consider this as part of the down payment. There is a good chance that the interest rate will decrease if the borrower is willing to pay some of the interest up front in the form of discount points/fees. When you negotiate a lower rate that means you will be paying less interest over the life of the loan. The total interest you end up paying is a lot less, however, you paid it up front, so you should do the math and determine what’s best for your situation. You also need to consider how long you plan on living at the home you plan to buy.

Discount fees work in your favor is you live there for as long as the loan term. If you end up moving before the loan term is over, you will have paid interest in advance which could have been spent otherwise. You need to determine if that money means more to you now or in the future. Is it worth paying the extra money to save later if you are in a dire financial situation now? Chances are if you’re in a bad situation now, you may want to just pay more interest over the course of the loan so that the present will not seem so daunting.

Mortgage rates change everyday and the interest rate on the day of submitting the application can be different from the rate on the day of the mortgage approval. Lock-in mortgage rates are a safe way to go because as the name implies you have “locked-in” a specific mortgage interest rate. If the mortgage interest rates change before your mortgage is approved, this will not affect you because your rate is already written in stone. It provides a safety net against interest rate fluctuations. You will definitely not end up with a higher rate, but you will also not reap the benefits of an interest rate drop.

You should do some research on the current interest rate volatility, speak to the lender and decide in the end if you want a “lock-in” rate. Most people go for the lock-in rate because “it’s better to be safe than sorry.” The choice is completely up to you, do NOT base your whole decision on what the lender says because whatever he says is in the interest of the lending institution, not yours. You can take what s/he says into consideration, but always do your own research. If you choose to do a “lock-in”, make sure everything is in writing. Also, know that even if you have chosen a “lock-in” some lenders will let you go with a lower interest rate if it really does drop. It all depends on who’s handling your loan, so make sure to try being buddies with your loan officer then you would get a lower rate and have a new friend.