As mortgage rates are erratic and sometimes the increase is unbearable, borrowers should find ways on how to effectively lower the cost of borrowing money before settling with a mortgage servicer.

Even though jumbos increased in price, conforming rates -- for mortgage amounts up to $417,000 -- decreased. On Aug. 20, for example, it was possible to find a 30-year fixed-rate conforming mortgage for 6.25 percent and one point. At the same time, jumbo mortgages over $417,000 were going for 7.25 percent and one point.

"Points" is a term lenders use for a mortgage origination fee. One point equals 1 percent of the loan amount that's paid by the borrower. This is paid only once at closing. By paying more points upfront, a borrower can lower the mortgage interest rate for the term of the loan.

Points are tax-deductible on purchase mortgages in the year of purchase for those borrowers who itemize deductions. This has certain limitations and restrictions, so it is better to consult your tax advisor to see if paying points will lower your overall cost of financing. Usually, the longer you plan to keep paying on the mortgage, the more worthwhile it is to pay points for a lower rate.

If you don't have the extra cash to pay points, you could ask the seller to pay points for you. Lenders, usually, allow sellers to credit cash to buyers at closing for their nonrecurring closing costs like “points”. They are paid only once during closing unlike mortgage payments or homeowners insurance that is paid periodically during the term of the loan.

Lenders have limits on how much a seller can credit a buyer. They can be between 3 and 6 percent of the purchase price. So, before you write an offer, try to find out your lender's limit. Then ask the seller to credit you a dollar amount that falls within the lender's guidelines. This way you won't raise a red flag with the lender that could cause your loan to be denied.

Also be aware that appraisers are taking a hard look at seller credits to determine if they affect the market value of the property. If you inflate your offer price to cover the cost of points and this puts the price out of line with current market value, the lender could lower the appraised value. In this case, your mortgage amount might also be lowered, leaving you short on the funds you will need to close.

No one knows the future direction of interest rates. But, if you believe that interest rates will come down soon and that you'll refinance into a lower-interest-rate mortgage, you might be better off paying a higher rate now and with no points.

Another way is by availing of multiple loans. This can reduce the cost of financing by combining a low interest-rate conforming loan with a second mortgage. Secondary financing is available in amounts up to $500,000 for buyers with a 20 percent cash down payment, a good credit score and provable income.

By combining a conforming $400,000 fixed-rate first mortgage at 6.25 percent with a fixed-rate $400,000 second mortgage at 7.4 percent, you end up with a blended rate of 6.8 percent. So, you create jumbo financing for under 7 percent in an over-7 percent first-mortgage market.

Make sure that there is no prepayment penalty on the second mortgage so that you can make pay-downs or pay the loan off at any time without penalty.