The Greater Your Loan Amount, the More Leverage You Have.

Since most loan officers' income is generated as a percentage of the loan amount, it's important to note that you'll have less flexibility in rate negotiations with a small loan than with a larger one. If your loan amount is $50,000 and the loan officer is charging 1 point and getting 1 YSP, that's $500 plus $500, or $1,000 in revenue. If she splits that with her employer, she'll get $500. Understand that most loan officers might close only a couple of loans per month; it's the good ones who can close 50 or 60 loans per year.

If a loan officer expects to make $500 on a loan, don't expect the absolute lowest rate on the planet with no points and no fees. And since most loan officers get compensated the very same way, you're probably going to find similar resistance by other loan officers to negotiating a lower rate.

Conversely, if your loan amount is $400,000 and you're being quoted 1 point and the loan officer is getting 1 YSP, that's $8,000, and that's why you can negotiate a lower rate or lower fees: There's more revenue going to the loan officer that you can negotiate with.

Is that fair? Should those with lower incomes and lower loan amounts get penalized with higher rates? I don't think so, but when you're talking about percentages or points, it's important to remember that it's the actual loan amount or monthly payment that's being discussed, not necessarily the rate.

For example, 6.00 percent on a $50,000 30-year note is $299 per month, while 6.00 percent on a $500,000 note is $2,997 Per month. The interest rate is the same, but the real number being discussed, the payment, is 10 times greater. Furthermore, 1 point on $50,000 is $500, while 1 point on $500,000 is $5,000.

Banks Can Set Their Own Rates.

Retail banks—those with a lobby, tellers, a vault, and maybe a drive-through—can set their own rates; the loan officer can't waver from the rates the bank charges each day. When you go into a bank lobby or visit your bank's Web site for a rate quote, the rates will typically be posted for you—there is no negotiation. You'll also probably notice that the bank's interest rates will be a tad higher than what you could find at a mortgage bank or broker. Banks can charge a higher rate to their consumers because, frankly, they can. They already have your checking account and savings account and probably a credit card and maybe an automobile loan. You trust them with your financial affairs, so why not trust them with your mortgage as well? Consumers will feel just fine with an interest rate that is 1/8 percent or so above what can be found elsewhere simply because of the peace of mind their bank can offer them. There's no "bait and switch" or hidden fees to dissect here.

This is also a direct benefit for someone who has a lower-than-average loan amount. If you're trying to finance a loan amount of, say, $100,000, and you feel that the loan officers you're talking to are increasing your rate to get a higher YSP, and thus a higher commission, then go back to your local bank. Because banks can set their own rates and loan officers must follow them, you might find that your bank has the lowest rates for your situation because of bank pricing policies.

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