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SHOP AROUND FOR A MORTGAGE

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When a person visits the grocery store, the normal procedure is to examine all brands of one product and purchase the item that has the best quality for the money.

Do people follow the same guidelines when looking for a mortgage?Normally not, according to Dennis Carter, president of the Home Builders Association of Utah, who says that shopping around for mortgage loans can save you plenty of money over the life of a mortgage. People shop around for their house, why not the mortgage? he asked.

When talking mortgages, one of the most important things to remembers involves points. Not the kind scored on the basketball floor, either.

A mortgage point is 1 percent of the amount of the loan. For example, for a $50,000 loan, one point equals $500. If you have a calculator, take the loan amount and divide by 100 and that will tell you the cost of each point.

Carter says lenders charge points to make the yield on their loans more profitable and receive some of the payment up front.

"Sometimes, you will be confronted with a choice of loans with different interest rates and points. For example, is it better to take a 10 percent loan with four points or a 101/2 percent loan with two points? The answer will depend on your personal circumstances," Carter said.

If you have a lot of money in savings or equity in an existing home so that accumulating the money for your downpayments and closing costs is no problem, you may prefer to pay the greater number of points up front so you'll have lower monthly payments over the term of the loan.

However, Carter said, if you plant to stay in the home for only a few years, you are probably better off taking the higher rate and the lower points. In general, the longer you stay in your home, the cheaper your points will be.

Carter said if you are confronted with choices of different rates and points, ask you lender to state the payback period for the loan with the higher points. The payback period is how long you have to stay in your home before the cost of the points, when averaged with your mortgage payment, becomes lower than the cost of a loan with a higher interest rate and lower points.