Some times getting a mortgage can sound confusing. And with many people there's nothing more confusing that being told that you're going to have pay so many points to get your mortgage. So let's take a minute and clear all the mystery away about points.

Points are nothing more than a fixed payment paid at the time of closing to the lending institution. The purpose of paying points is to reduce your rate of interest. For this reason you need to add in the cost of the points to determine your true closing costs. To make things even more clear ask your lender to tell you their points charge in terms of dollars rather than points.

Sometimes paying points can make a great deal of sense. If you can lower your interest rate by, say, a half a percentage point, it may be worth it to pay several thousand dollars in points. This would make sense because the lower interest rate will recoup the cost of the points and a whole lot more.

This is why you need to compare mortgage packages before deciding on which to accept. If you get three proposals, and that's the minimum you should compare, chances are all three will be significantly different.