Paying up-front points: Borrowers can pay points--one time, up front fees--in order to reduct their mortgage's interest rate over the life of the loan. One point represents 1% of the mortgage value.

When interest rates were high, paying points didn't make sense because borrowers were very likely to refinance after rates dropped. They wouldn't hold their original loans long enough to recoup their upfront costs. But now borrowers can get a lot more bang for their buck. The old rule of thumb was that paying one point at closing could lower their mortgage's interest rate by a quarter percentage point or so. Today the spread is worth a half point to a full point on the rate.

It means paying $2,000 on a $200,000 mortgage at closing can shave as much as a whole percentage point off the loan's interest rate, changing a 6% loan to 5%. That would save $126 a month and pay for itself in 16 months. Even if the rate were only lowered to 5.5%, that would still save $64 a month, paying for itself in 32 months.

Of course, there are caveats. Buyers who are planning to refinance or sell within a few years shouldn't pay points, since the strategy simply doesn't pay in the short term.

Making more than the minimum down payment: If you can afford to put 25%, 30% or more down, should you do it? Most lenders require a minimum down payment of 20%; anything less and borrowers will need to obtain private mortgage insurance. And if the buyer could afford to put more than 20% down, it was generally assumed that they should. But now, in light of declining home markets, not everyone would agree with that. High down payments can be wiped out in severly declining markets.

Locking in the mortgage rate:  Many borrowers choose not to lock in when rates are falling, as they have been, since they assume that the deals will only get better. But that's often a mistake. Interest rates tend to jump up much faster than they inch down, meaning that buyers are much more likely to get stuck with a higher mortgage rate than they are to get lower one because they waited. Besides, locking in  at the currently very affordable rates can give borrowers peace of mind, which is no small matter when you're trying to buy a house.

Source of article:  Les Christie, CNNMoney.com staff wirter, February 4, 2009