You found the right agent, you found the right home and you found the best lender. Right? But most of all, you got the best danged interest rate in these here parts. You got the interest rate by doing all the right things and you got advice from someone "on the inside."

The mortgage market is no different than any other product or service. There's competition and plenty of it. Not only that, but it really doesn't take a whole lot to get into the mortgage business. Yeah, I know there's licensing and continuing education in most states, but really, one doesn't need a 4-year college degree to push a loan.

That does a couple of things; one, the level of professionalism can be hurt. If it takes very little to get in the business then how do you really know who you're dealing with? The mortgage business can be very fluid, lots of folks coming into the business while at the same time lots of others leaving it. It also leads to a marketing maze, confusing the consumer with jargon never before heard.

Mortgages have positioned themselves as a commodity; after all, that's what the Secondary Market (Fannie and Freddie) has tried to produce. And if a commodity is truly defined as a "product where the determining factor is price" then you can see how tricky sales tactics can influence mortgage rates on the consumer level.

But you rose above all that. You followed the tried and true tactics of getting the best rate. What did you do?

1. You went hunting and not fishing. What is meant by that? You have to decide up front, at the very beginning which loan program works best for you. Cross your heart and hope to die. When you go hunting, you know what you want and you set your sights on your goal. If you simply "fish," then you're only throwing some bait in the water not knowing what's going to bite. When you do hook one, you get whatever you reel in. Or worse, you're the one that gets reeled in.

   When loan officers can't compete on a particular loan program or they find they can make more money on another loan they'll try to steer you away from your selected loan program. This defeats the whole purpose of finding the best deal. You can't compare one loan against an entirely different loan when you're looking for the best rate. It is imperative that you truly compare apples and apples.

2. You also timed the market well and understood how economic data can impact an interest rate. Gambling types try and outsmart the market, let their interest rate "float" until after such-and-such report, and knowing (betting) that the report will lead to lower rates.

   If you guess right, you get a better rate. If you guessed wrong, you lost.

3. You also understood the importance of comparing closing costs along with the interest rate. What good is 6.00 percent compared to 6.125 percent if the lower rates costs you several thousand dollars? Not much.

   The Annual Percentage Rate (APR) is a tool used best by those who know how to use it. The APR is an oft-misunderstood number, but when used properly allows you to truly compare rates from different lenders. Lenders can offset a slightly lower rate by increasing their "junk" fees such as Loan Processing or Administration. By comparing not just the rate but also the lender fees associated with that rate you know what you're getting.

4. Time is money. And the longer you tie up money, the more that rate will cost you. If you're refinancing, you have the supposed luxury of waiting to lock in your rate whenever you fell like it. If you're buying and closing at the end of the month, you don't have that luxury. You have to close when the contract says so.

When comparing rates from different lenders, you need to consider the lock period required along with the closing costs. Get a quote not just on rate and fees, but compare the same lock period as well, giving you enough time to close your deal.

There. Easy enough, right? Don't let loan officers try and confuse the issue with marketing tricks like different loans, different closing fees or shorter lock periods. The mortgage industry has, successfully, made mortgages difficult to understand. But now you're ready for them. Happy hunting!

Published: June 1, 2005

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