The most frustrating part about getting the best interest rate is actually getting a rate quote you can trust. Some of these tricky loan officers will make used car salesmen seem like saints when it comes to quoting an interest rate. Want 5.00 percent? Sure, we got 5.00 percent! Then you go to your closing and yes, you got 5.00 percent alright, but you also got hit with points, origination charges, administration fees, commitment fees, processing and underwriting charges. Not worth it, right? This week's column will focus on getting the rate quote right every time by considering closing fees.

Stop me if you've heard this one before, but part of the Federal Truth in Lending Law, specifically Regulation Z, requires that those who quote consumer rates, including mortgages, must also quote the Annual Percentage Rate. No big news flash there. The APR is the cost of money borrowed expressed as an annual rate. The problem lies not with the APR, but the misapplication, misunderstanding, and flat-out abuse of the APR.

APR abuse can be intentional, or it just be a dim loan officer who can't explain the offers he selling. The APR number is supposed to reflect not just the note rate itself -- the rate you actually pay your mortgage with -- but it also includes additional fees associated with that rate. A note rate of 6.00 percent with lots of lender charges such as points, processing, underwriting and so on could result in an APR of 6.50 percent for example. A note rate of 6.00 percent with little or no lender charges other than maybe an appraisal and prepaid interest could have a smaller APR like 6.11 percent. The greater the variance between note rate and APR means there are lots of associated closing costs. At least that's the application theory.

The fact is, the APR number is so often misquoted that many loan officers dismiss its utility at all. I disagree with that. The APR is a very useful number... as long as it's used correctly. But that's where you can run into trouble. Especially if your loan officer can't tell you which closing costs were used when calculating APR.

Instead, try this; get a rate quote for the same period of time, say 30 days, and ask for one with no discount points or origination charges. Get your quotes from your different lenders at the same time of day and also ask them for a list of Lender charges, more specifically those listed in the "800" section of the Good Faith Estimate. It is here, that fees used to help calculate APR are located and can include all lender or broker junk fees such as Administration or Processing, Discount Points or Points, Origination fees, and more.

None of the other charges such as title insurance, or attorney, or escrow really matter when comparing interest rates. Your lender or mortgage broker have nothing to do with those charges. And don't let a loan officer try to confuse you by giving you a "total" estimate of costs. Instead, thank you very much, just give me those fees listed in the 800 section. That's all you really need to compare rate quotes.

If you're working with a mortgage banker, those fees should, mostly, be set in stone. If you're working with a mortgage broker, those fees can change depending upon which lender the broker is quoting. If you're working with a broker, go ahead and ask them who those fees belong to, be it Countrywide or BankAmerica, Washington Mutual or whomever. There should be no reluctance in telling you who the lender might be. Even at that, competitive wholesale lenders should have about the same amount of charges as one another. They might call them different things, but their totals should be about the same.

The absolute key with this process is to only include 800 series closing costs. Don't worry about hazard insurance for example, your lender has no control over that, nor do they have any control over the cost of an escrow. That's the biggest trick in the world; to low-ball third-party fees to make the mortgage brokers overall package look sweeter. It won't be. Those third-part fees are what they are. Yeah, I know that there are some negotiated package deals that can reflect reduced fees, but that's the exception, not the norm.

Over the past few weeks one thing has remained constant in this series on finding the best rate... and that is being consistent, and not getting distracted. Don't let someone else confuse the issue. Be strong and be aware. Some of those loan officers out there are pretty sneaky.

Published: April 29, 2005

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, a veteran Mortgage Banker, successful Real Estate Consultant and author of Your Guide to VA Loans, Mortgages 101: Quick Answers to Over 250 Critical Questions About Your Home Loan, Who Says You Can't Buy a Home!, and Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You, is a former columnist and Contributing Editor with San Diego-based Mortgage Originator Magazine. Reed is President of CD Reed Mortgage Bankers, Austin, TX and is a Past President of the Austin Mortgage Bankers Association.