Here are answers to common questions asked by prospective homebuyers considering a mortgage loan to finance their home purchase.

What are points?
There are several types of mortgage-related costs called "points," and their definitions and purposes vary. Generally, points are costs that must be paid to a lender in order to receive mortgage financing under specified terms. Commonly, a "point" represents a percentage of the loan amount (one point equals 1 percent of the loan), e.g., one point on a $150,000 loan would be $1,500. "Discount points" are fees you pay to receive a lower interest rate on a mortgage loan (you are discounting the interest rate by paying some of this interest up front). Lenders also may express other loan-related expenses, such as origination fees and document preparation fees, in terms of points. Some lenders may state their costs in terms of basis points (hundredths of a percent). One hundred basis points equal one point (or 1 percent of the loan amount).

I have been checking listings by mortgage lenders, and everyone gives quotes for a 30-year fixed-rate mortgage. It seems to be the most popular. Is that the one I should get?
There is no black-and-white answer to that question because there are many variables. Among the most important questions is: How long will you stay in the house? If you are only planning to live in the house a few years -- say three to five -- why pay for rate security provided by a 30-year loan? A three- or five-year adjustable-rate mortgage will provide rate stability for the first few years, and the rate will be lower than on a 30-year fixed. On the other hand, if you plan to remain in the house for 10, 20 or more years it makes sense to get the lowest fixed rate available because no matter what happens to interest rates, it will not change as long as you have that loan. With so many loan products available, it would be wise to discuss options with your lender.

What does it mean to "lock'' the interest rate on a mortgage loan?
Due to interest rate movements, mortgage rates can change dramatically between the day you apply for a mortgage loan and the day you close the transaction. If interest rates rise sharply during the application process, it could make your mortgage payment larger than previously estimated. To protect against this uncertainty, a lender can "lock-in" the loan's interest rate and guarantee you, the borrower, the prevailing loan rate for a specified period of time (often 30-60 days). A lender may or may not charge a fee for this service.

Should I lock-in my loan rate when I apply for a mortgage loan?
No one knows for sure how interest rates will move at any given time, but your lender may be able to estimate where he or she thinks mortgage rates are headed. If interest rates are expected to be volatile in the near future, you may want to consider locking your interest rate, especially if a rate rise would mean you no longer qualify for the loan. If your budget can handle a higher loan payment or if the lender's lock fee seems excessive, you might want to consider letting the interest rate "float" until the loan closing.

What is the lowest amount I can use for a down payment on my home purchase?
A 20 percent down payment used to be the standard, but most lenders today allow the buyer to put as little as 5 percent down, or $5,000 on a $100,000 loan. There are also some programs that require down payments of as little as 3 percent. When you put less than 20 percent down, you will be required to purchase mortgage insurance (Private MI), which could cost $40-$60 a month on a $100,000 loan, depending on the size of your down payment, your credit history, the type of loan you get, and the amount of coverage your lender requires. Or you could use other mortgage financing options to sidestep the need for Private MI. You will also be expected to pay for closing costs, so be sure you allocate funds for these expenses when saving to buy your home.

Should I put down as much as I possibly can when buying my home?
Whether or not you should make a down payment that exceeds your lender's minimum requirement depends entirely on your individual financial circumstances. At the minimum, you should leave enough funds available to cover related loan costs and two months worth of mortgage payments. Any remaining funds should be used to best fit your total financial picture. Would you be better off investing the money, buying furniture, or reaping the benefits of a larger mortgage interest deduction? The answer will depend on your financial situation and goals.

What is a biweekly mortgage loan?
A biweekly mortgage loan is a loan on which the borrower makes a loan payment every two weeks instead of the traditional once a month. The biweekly payment is one-half the amount of the calculated monthly payment. If the calculated monthly loan payment were $1,000, the biweekly payment would be one-half of that amount ($500). Since there are 52 weeks in a year, the borrower makes 26 half payments, which translate into 13 full payments. By using a biweekly plan, the borrower makes one extra payment per year, pays off the loan balance faster and reduces future interest costs.