With mortgage rates hovering within a narrow one-quarter of 1 percent band for the past two months, home buyers and refinancers nationwide are confronting a cost-comparison dilemma: How do you figure what combination of rates and "points" add up to be the least expensive loan? How do you know whether to go for a lower rate with more points or to shop for no points with a higher rate?

Data supplied by 2,000 mortgage lenders to the national rate-monitoring firm of HSH Associates reveal a vast range of rate-and-point combinations being marketed. Some lenders are asking 10.5 percent with no points, others are asking for four to six points for a 9.5 percent mortgage.

A "point" is equal to 1 percent of the mortgage amount and is payable at loan settlement. Borrowers typically pay most or all of the points levied in a transaction, but home sellers in many markets also chip in for one or more points.

The average 30-year quote in Philadelphia, according to HSH, was for a 9.75 percent loan with three points. The same loan in San Francisco went for 10.33 percent and less than two points.

What's the better deal? Equally important, can loan shoppers figure out the answer by checking the benchmark they've been taught to trust -- the annual percentage rate (APR)?

Forget the APR when it comes to points. The annual percentage rate computations you find in mandatory truth-in-lending disclosures of mortgage loans provide you an effective rate for the full term of the mortgage. But only a small percentage of 30-year loans run their full term.

The name of the game in figuring the true cost of your points is the length of time you expect to be in the house. Consider these examples prepared by David Hershman, vice president of American Residential Mortgage Corporation, a national lender.

Take the relatively common case of a loan quote of 9.75 percent with three total points, two to the home buyer, one to the seller. What's the APR on the mortgage? The disclosure document says 10.1 percent.

But because of the effect of the points paid up front, the true cost to the buyer is:

A staggering APR of 22.3 percent if the buyer has a sudden change of circumstances and has to pay off the loan three months after closing.

An APR of 16.1 percent if the owner sells after six months.

APRs of 13.1 percent after one year, 11.5 percent at two years, 10.5 percent if payoff occurs in year five, and 10.4 percent in year seven.

The earlier the payoff and the higher the points, the higher the true APR.

Now consider a loan with no points. Hundreds of lenders offer these. Since there are no points, the APR on such mortgages doesn't change over time. If it's a 10.25 percent no-point loan at closing, the APR is 10.25 percent from year one to year 30.

How does a $100,000 loan at 10.5 percent with no points stack up against the same-size loan at 9.75 percent plus three points described above? At the end of one year, the borrower with higher rates but no points has laid out $10,976 to the lender. The borrower with the lower rate -- but points up front -- has already laid out $13,309 including the cash at settlement.

At the end of year two, the higher-rate, no-point borrower has paid $21,953 to the lender, while the lower-rate borrower has paid $23,619. Only at the beginning of the sixth year does the lower-rate homeowner begin to save money in comparison with the 10.5 percent borrower.

At that point, in other words, the true APR on the 9.75 percent mortgage dips below the constant 10.5 percent APR on the point-free competitor.

Had the buyer resold the house or refinanced the loan before year six, the apparent advantage of taking out a 9.75 percent loan with a "truth-in-lending" APR of 10.1 would have proved illusory in comparison with a no-point mortgage carrying a 10.5 percent fixed rate.

On the other hand, had the 9.75 percent borrower retained the loan for 10 years, he or she would have chosen the right mortgage. The APR would have dropped to 10.1 percent by that year, and the borrower would have saved roughly $3,700 compared with the no-point alternative.

By the end of the full 30-year term, the 9.75 percent borrower's savings would exceed $17,000 over the 10.5 percent loan.

The upshot? If you're shopping in this summer's market, and you're attracted to the low rate on a loan, ask yourself how long you are going to stay in the house. The longer you stay, the less effect the upfront points will have on your APR.

And before choosing a "pointless" mortgage, ask yourself the same question. This time, though, the shorter your likely stay, the better.