Mortgage Rates - What You Need To Know

Many potential customers simply call lenders up and ask, "What's your rate?" But they fail to indicate what kind of loan they need, how long of a lock period they want, how many discount points they're willing to pay, how long the rate is good for, or anything else. Consumers have to specify all of these things or lenders can pretty much say whatever they want, and then provide different figures when the customers come in and blame the lack of specificity.

A loan with a lock period of just 15 days, for instance, usually has a lower rate than one that a consumer can lock in for 60 days. Most consumers opt for loans with longer locks because they need more than two weeks to close. But loan officers sometimes quote rates on their shortest-lock loans over the phone or in print just to sound cheap, knowing full well that many callers will never be able to obtain those loans. Companies can provide rates that include several points to look better, even though many customers either can't or don't want to put down several thousand extra dollars at closing.

Figure in the fees
Borrowers often forget to ask about fees, and don't compare lenders based on those costs. That allows companies to pad their bottom lines by adding "document preparation fees," "underwriting fees" and other miscellaneous charges to the loan at closing. Lenders don't control certain fees for services provided by third parties, such as title searches and appraisals. But they can adjust their own fees, so consumers who know to do so will negotiate.

Don't believe everything you read
Consumers need to watch out for advertising tricks, too. Companies have been plugging "no cost" refinance loans lately, but the tagline really means "no out-of-pocket costs at closing." Borrowers pay higher rates on these mortgages and lenders use the extra money to pay the costs themselves.

The annual percentage rate, or APR, found in advertisements can be misleading as well. Mortgage lenders don't always include all the fees they charge in the calculation that determines APR, so customers who use that figure to shop rather than an itemized breakdown of rates, points and fees may end up comparing apples to oranges. Of course, it's difficult for borrowers to compare fees when they don't know what they are. By law, lenders and brokers don't have to give what's called the Good Faith Estimate document to customers until three days after they apply. But there's nothing preventing shoppers from asking for it before committing to anything. Reputable lenders and brokers will provide one.