Home mortgages have at least two features. One is the note rate, which is the annual interest rate paid on the balance outstanding and the other is "discount points" which are up-front payments to the mortgage broker. Why would anyone pay points? Paying discount points lowers the note rate! Consider the following example. Bank of Amerika offers a 30 year fixed rate mortgage with a note rate of 5% but the borrower has to pay 2 discount points. Friendly Finance offers a 30 year mortgage with no points or fees but the not rate is 5.4%. Which is the better deal? The "official" government measure of the cost of credit is the APR or "annual percentage rate" which is the interest rate that discounts all payments of interest, points, and fees to a present value equal to the loan amount. You can compute the APR on any mortgage with any interest rate, point, fee, and term to maturity on the internet where the discounting to a present value is done automatically for you. Check this out by searching the internet using the phrase "APR calculator" or just go to http://www.interest.com/content/calculators/aprcalc.asp. Enter the note rate in the box for note rate, the term (30 years) in the box for term and enter discount points (if any) in the appropriate box. There are no other fees. Compute the APR for the two loans. Which has the lower APR?