MORTGAGE RATES are lower than they've been in months. Just last week the national average for a conventional 30-year fixed rate loan was 7.47%, with 1.8 points. If you're in the market for a new loan or are thinking about refinancing an existing one, you may be tempted to pay a point or two upfront to secure a historically low rate. But is that extra point really worth it?

For the uninitiated, each point represents 1% of your total mortgage, and for each point you pay upfront, you'll generally get a 1/4 percentage point reduction on the interest rate for your loan. Tempting as it may be to lock in that lower rate over the life of your loan, you need to figure out if you could be putting that money to better use. The sad truth is, for most homeowners, the "discount" most lenders give to secure that lower rate usually isn?t worth it.

Let?s say you wanted to take out a $250,000, 30-year, fixed rate mortgage on a home in New York. Countrywide, a large national mortgage lender, recently quoted these programs: 7.375% with 2.25 points, 7.5% with 1.5 points and 7.875% with no points. Which plan makes sense? It all depends on how long you plan to stay in the home and what rate of return you believe you could get on the money you would pay in points. Using the SmartMoney Interactive Points or No Points Worksheet, we figured an extremely conservative 6% annual return and the full 30 years in the home. The results: If you opt for the loan with the 7.5% rate, it would take you 81 months to recoup the money you initially spent on points, compared to the no-points loan. If you could earn 7% annually, your break-even point extends out to 87 months. At a healthy 15% return -- half the three-year average annual return of the S&P 500 -- it would take 182 months or over 15 years in the house.

The points you pay upfront are tax deductible -- another factor to consider if you have few other deductions and are buying your house late in the year. However, if you believe you might be able to refinance your loan if rates drop before your break-even point, the money you paid in the beginning is out the window.

To see how you would fare, try the Points or No Points Worksheet with rates supplied by your lender. The results may convince you that a no-points loan, even if it carries what looks like a much higher rate, may be your best option.