[squiffy]

It's not that simple in terms of the loan rate. Generally to get a lower loan rate, you need to pay a higher out of pocket fee or points to the lender. So it's sometimes better to get a higher interest rate, and pay lower cash up front.

It depends on how much cash you want to pay up front, vs. how much lower the interest rate is that you get.

If you stay in the house for 30 years, or rent it out for 30 years, then the lower interest rate will tend to pay for itself over a LONG period of time. Because the interest savings long term starts to make up for the huge up front cash layout.

I think Mortgages for Dummies gives a decent explanation of the trade off between interest rate and points. Or do a general websearch for mortgage info.

On yahoo there is a mortgage info section with a reference to a website by some professor who calls himself the mortgage doctor or something like that. His advice seems to be pretty good, with lots of calculators and illustrations.