All the "experts" tell you to "shop for rates" -- but they don't tell you how to shop for rates.  Without an understanding of how loans are priced and lock-in periods, calling up a lender to find out their interest rate could provide you with mostly useless information.  So if you didn't read the previous two sections to this article, click here.

If you simply call up and ask for interest rates, a lender can tell you anything.  One lender may quote a "floating" rate (seven or twelve day lock) and another may quote you a forty-five day lock.  Another lender may quote you the rate for two points and another may quote you the rate for one point.  If you call lenders on different days, you could get widely different quotes because rates don't stay the same every day. 

That isn't shopping for interest rates. 

When you call a lender to shop for rates, you have to know at least two things:  how many points you want to pay and how long you want to lock in the rate.  You don't have to really intend to lock in the rate, but you have to give them all the same parameters so that you get meaningful quotes.  You also have to get your quotes all on the same day. 

By the way, you can't trust ads in the newspaper, on the radio or on television.  Ads are generally placed at least a day in advance.  Since rates change every day, ad quotes aren't reliable.

Is the Quote Reliable?

Lenders know when you're just calling up to get a rate quote.  They know you are calling up their competitors.  When you ask for a rate quote for a specific lock-in period paying a specific amount of points, most lenders will give you a reliable quote.  But you're applying pressure for a great quote.  You let the loan officer know you're "shopping around."  You want the "best deal."

What do you think happens?

At least one loan officer will lie to you. If he doesn't fudge the rate, he doesn't have a shot at your loan because someone else will lie to you.  Plus, you can't check anywhere to see if he is telling the truth.  You're not likely to immediately fill out an application and lock in the false rate you were quoted.  You're going to keep calling around and shopping and maybe tomorrow you'll call back whoever gave you the best quote.

Truthful, ethical loan officers will not get your loan.

By the time you are ready to really lock in your interest rate, you'll be quoted accurately -- or maybe not.  If someone would lie to you to get the loan, they aren't ethical.  They may jack up your rate at the end of the deal when your options are limited.  You probably won't even realize he's doing it because you aren't shopping interest rates anymore.

How to Really Shop for a Lender

The best way is to get a referral (from a Realtor or a friend), then shop other lenders.  Do it properly, telling the lenders how much you are willing to pay in points and how long you want to lock in the rate.  Make all your calls on the same day.  Tell the lender you have already filled out an application and that you are willing to fax it in, so the rate has to be something he can deliver. 

Get the best quote under those conditions, then call the lender who was referred to you.  Tell him what you found out and he will tell you if it is real or not -- and whether he will match it. 

Then you choose your lender.