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Note Rate
The Note Rate is the interest charge on the loan, expressed as an annual percent of the loan balance.

NOTE RATE BASICS
Note rate will vary based upon economic conditions, the borrower's credit report, term of loan, and the discount points paid at loan closing.

If plans call for owning the property more than a few years, ask about the option of buying a lower note rate by paying discount points.

A little work with a cheap financial calculator will soon determine whether the reduction in the monthly mortgage payment offsets the discount fee.

LOAN TERMS
Lenders typically offer a 30 year loan term, but cutting this term back to 25 or 20 years can facilitate obtaining a better interest rate, and save tens of thousands of dollars in interest charges while causing a modest increase in monthly payment.

Some lenders will offer a 360/180 fixed rate loan, where the payments are based on a 30 year term, but a balloon payment comes due after 15 years. This can save money, but can be risky unless the buyer is certain of no longer owning the house in 15 years.

DETERMINING THE NOTE RATE
The Note Rate can be based upon a fixed rate, which remains constant for the term of the loan ... or an adjustable rate, which fluctuates over the course of the loan.

The Adjustable Rate is a rate determined by adding a margin (percentage) to an index rate, such as the US Prime Interest Rate, LIBOR (London Interbank Offered Rate) which is the rate banks charge each other to borrow money, or a specific US Treasury instrument.

These Index Rates are regularly published in the Wall Street Journal.

WHAT TO EXPECT
Each lender has a method of determining how the Index Rate is determined, meaning the prudent borrower will understand how each potential lender determines the Index rate, and verifies the correctness of the quoted Index Rate.