When getting quotes from competing lenders it’s always hard to know who’s telling the truth and who is giving the real interest rate when they quote you. To be completely sure you really do need to ask several lenders to quote you to be sure you are getting the best deal. The first thing to understand when comparing fixed mortgage rates is that interest rates never change and are always constant.

What’s that you say? Rates change daily don’t they? Not really, a 5% rate on a 30 year fixed mortgage has always been available regardless of the market. What changes is the cost of that rate to the retailer (Mortgage Company) and eventually the borrower, these are called points. What we are seeking from the mortgage company is the par rate; this is the lowest interest rate that does not require us to pay points.

Everything revolves around the "Par rate". The par rate has no cost to you and no profit for the lender. Very rarely will a lender quote this rate unless they are trying to "low-ball" you in hopes of raising it later. When a lender sells a rate above "par" she makes a profit. When she sells a rate below par it represents a cost to the lender that she usually passes along to the borrower in the form of points. These are the interest rates that are usually advertised on mortgage web sites, and that is why you are usually told you can’t have that rate.

Most borrowers are aware that the mortgage company needs to make a profit and to stay in business, after all they aren’t philanthropist. The intelligent shopper will seek to manage the amount of profit in the deal as opposed to having to argue about rates and closing costs. Most mortgage companies buy their money from the same sources, meaning their rates should almost be identical. Therefore, if you are reasonably sure you have the "par rate" then you have effectively narrowed the discussion down to the closing costs. Once you have the lender negotiating their profit you have the upper hand!

So how do we find this magical "par rate" from the lenders? It’s simple, you ask them. This is where having 3-5 lenders to work with pays off. When you speak with experienced lenders they are going to ask you a series of questions to pre-qualify you to a rate. Rates have add-ons so to speak. The lender begins with a par rate and then adds and subtracts from that rate depending on your specific loan situation. It will be a little tedious going over the same questions with 3-5 lenders but the payoff is worth it. Once the lender feels comfortable that she knows your situation she will usually quote you an interest rate.

Rest assured this rate will NOT be a par interest rate. You should respond to her verbal quote "is that the par rate?" She will probably be taken back that you know to ask this question. What you want to convey to the lender at this time is your willingness to pay higher closing costs to get the lowest rate. It should be sort of like this "I realize my closing costs may be a little higher but can you quote me the lowest rate that is available without having to pay points?" The lender should volunteer the information, if not, next!

After that, you want to repeat the same scenario with three to five lenders. Most of the interest rates you are quoted should be within a ¼ point or so. You will probably get one guy whose rate is considerably lower than the rest; this is usually the guy that is trying to low-ball you. If you follow through and get a full quote on a Good Faith Estimate his closing cost will almost always be considerably higher. I recommend discarding this lender from consideration; they are usually the tricksters you want to avoid.

The last step is to compare closing costs of the two top lenders you feel comfortable using. Ask them to send you a "Good Faith Estimate" (GFE) and do not accept anything that does not have those three words at the top of the page. The GFE is a legal document that is part of their RESPA package; most lenders have to re-disclose this document before closing if the numbers change. For whatever reason, if the lender refuses to send you this document ahead of time, next!

Once you have these GFE’s in your hand just simply compare the closing costs, (How to figure closing cost). If their rates are comparable the lender with the lowest closing costs wins. If you want to chip away at their profit you can play each lender off the other until you are certain you have your best deal. Use caution here, if you get a lender to work on too little profit and your deal hits a "bump in the road" they may simply turn the loan down. Believe it or not loans are a lot of work, and if the loan officer is not being fairly compensated SHE may very well say "next!"