Isn't the interest rate the price?

Since the product you are buying is really an interest rate plus professional services, simply put, the price of your product is the total of Discount Points and all other lender/broker fees paid to obtain the money you want, at a particular interest rate, along with the service you expect or require.

Discount Points have a direct effect on the interest rate.  Whether or not you pay points is a matter of personal preference and financial situation.  Paying Discount Points will usually result in a lower interest rate.  Rebates, or interest rate credits, will  result in higher interest rates.  In the middle is the most common rate which involves paying no points.  Yet even the "No Point" interest rate can vary among lenders.  This is one reason why you shop and compare prices. 

In addition to Discount Points, there are a variety of other lender/broker charges.  Fees for origination, processing, underwriting, document preparation, and an assortment of other fees with different names are charged by different lenders.  In today's lending arena, lender profits are not made from interest payments, but from the servicing and resale value of the loan and its corresponding interest rate, plus the upfront fees.  So you might see a lower interest rate offered, but find that the upfront costs are higher than others.  On the other hand, seeing much lower fees will generally indicate a higher interest rate.  For the most part, it is either pay now or pay later.  There is pretty much no getting around it regardless of advertisements you might see.

It all seems very complicated; yet, while not a simple process, shopping for a mortgage does not have to be difficult.  After researching a few lenders, you will have a good idea of interest rates in your market.  When shopping for the mortgage, the only way to compare involves using identical interest rates and lock in periods available for your situation, and a complete itemization of fees for that rate from each lender.  In this way you can determine whether or not the price is a fair price for your product. 

And remember, avoid being greedy.  You will get nothing for nothing, and in the case of mortgages, paying less often means paying more! 

Click here for a Lender Comparison Checklist that you can print and use in your shopping.

For mortgage shopping tips from the pros, click for a FREE MORTGAGE REPORT which includes Comparing Lenders and Loans - How to Really Shop for a Mortgage.