How to Avoid Mortgage Overcharges

Mortgage brokers and loan officers want you to accept higher loan pricing because they are paid on commission. But you can do some things to protect yourself when you're shopping for home loan.

You can obtain a mortgage broker who works on a fixed fee basis, so you won't have to worry about being overcharged.

Lenders provide "inside prices" to their loan officers and mortgage brokers every day. Borrowers never see these prices, so they are stuck with whatever the loan officer says is the market price. Most of them overcharge borrowers simply because they can.

Lenders may quote you very low rates at first, even though they will never be able to deliver. When you get to closing, they will charge a much higher rate and tell you that the market has changed. You can recognize this dirty trick right away: if the rate quoted is a lot lower than their best competitor, you know the offer is too good to be true.

When you apply for a loan, be sure that your interest rate will be locked in at the lowest rate. A fee is usually charged by the lender for this service, and if that fee is based on the interest rate, it should be lower if your interest rate ends up being lower. Don't let your lender "forget" to make the change.

Do not agree to any loan that includes prepayment penalties. This tactic is used to attempt to discourage you from refinancing. And do not agree to an arbitration clause, as that is designed to keep you from suing the lender. If a problem comes up, you will have to go before a third-party arbitrator to settle the matter, rather than going to court. Lenders like this clause because it helps them get around the laws that were made to protect homeowners, such as the Real Estate Settlement Procedures Act. Banks are exempt from this law, which means they can charge you as much as they want for your mortgage, and you'll never know the difference.

Rather than trying to get the better of a loan officer who gets to practice this price-gouging every day, compare mortgages online. Many web sites are available that let you enter your home-buying or refinancing information into a form. Then lenders contact you directly with offers based on your situation. The lenders are then competing for your business, rather than your having to chase them down.