Strategies for saving on home loans

Whether you're buying for the first time or refinancing for the 10th time, here's how you can save time, money and frustration in the often-unsettling mortgage process:

Shop for a loan, not a lender:
You may have a strong, long-term relationship with your bank, but that doesn't mean they'll give you the best deal. Most loans are sold on the secondary market, so the financial institution that gives you the loan might not be the one that owns and services it for the next 30 years.

Look at different loan types:
Long gone are the days when your only decision was whether to get a fixed or an adjustable. Today, there are loans for first-time buyers, loans for people who plan to move in a few years, loans to eliminate private mortgage-insurance requirements, loans that mix the advantages of both fixed and adjustable. Do some homework and figure out which loan is right for you.

Variable rates:
There's more flexibility in interest rates than you may think. The same loan with the same lender can have many different interest rates, ranging more than a full percentage point. The key difference will be in the loan fees. Higher interest rates have lower fees and vice versa. Keep that in mind when a loan officer tells you at the last minute that he can't offer you the promised loan at the promised rate because it's no longer available. More than likely, you can still get the lower rate, but it will mean the broker will have to accept a smaller fee.

No-cost loans:
With no-cost loans, the closing costs (appraisal, credit, points, etc.) are built into the mortgage by charging you a slightly higher interest rate, usually an additional 0.5 percentage points. It's a great option if you won't stay in the house very long or plan to refinance. If the average interest on fixed-rate loan is 7.5 percent, the no-cost equivalent would likely be about 8 percent. Watch out for prepayment-penalty clauses, which are increasingly common with no-cost loans. And don't forget to inquire about the broker's rebate. Just because you're not paying any fees, doesn't mean you shouldn't care. Most no-cost loans require a rebate of about 2 percent to 2.5 percent to cover closing costs and the broker's profit. If you're paying more, chances are you can negotiate a lower interest rate.

Fixed vs. ARM:
ARMs (adjustable-rate mortgages) are easier to qualify for, have lower starting interest rates and often have lower loan fees. If you plan to move within five years, an ARM will probably be cheaper than a fixed-rate loan. A compromise could be a so-called hybrid ARM, which offers fixed payments for three to seven years and then adjusts to current interest rates.