More and more mortgage loan shoppers find themselves scratching their heads when the lender, after quoting a certain interest rate and set of loan fees, comes back to the buyer and beats its previous quote. Is this a form of bait and switch or just good business?

Let's first write a scenario and then decide if the lender's actions were legally correct. You apply for a mortgage loan. The lender quotes you an OK rate; but you feel the discount points the lender requests are on the high side. So you shop with other lenders and find the same interest rate with almost no points.

When the first lender calls to see if you're ready to commit to his loan, you tell him what you found elsewhere. He says he might be able to "do something about that" and later faxes you a loan disclosure sheet, showing that he met the second lender's rate and points.

While the practice might have the consumer questioning why the lender wasn't more competitive in the first place and wondering if perhaps the first lender won't go lower yet if prodded, the lender was probably not acting in an illegal manner. True bait-and-switch is luring a buyer in to do business with you, while all along not having the product or service advertised, in order to "switch" the buyer to something more expensive or beneficial to the company. The lender in our scenario had more of a "let-them-ask-before-I-become-competitive" attitude. And unfortunately, the lending industry has its fair share of players with this "get all you can" mentality.

Here's where being a savvy consumer makes all the difference. Since you know the lender is doing his best to maximize profit, you need to become vigilant to minimize your costs--not just where rates are concerned, but in the overall cost of borrowing. This includes the discount points, loan fees, private mortgage insurance costs and even the ability to pay your property taxes and insurance separately from your monthly loan payment, so those funds won't be impounded with the lender. Why shouldn't you have the benefit and float of your own cash instead of the lender?

Another confusing interest rate scenario occurs when a lender gives you a range of rates and discount points. If you're merely discussing mortgage possibilities with a lender over the phone, for example, a specific rate might not be quoted. Why? The lender needs more information before quoting an exact rate. He would check your credit and run your qualifying ratios (based on the income and debt information you provide). The bottom line is that lower rates and fewer points generally go to stronger buyers. In fact, it's not uncommon for a lender to quote you the highest probable rate and points for the loan you're considering when doing a "good faith estimate" for you. The idea is that although this is merely an estimate of costs, it will probably lean toward a high-side prediction of your monthly mortgage payment.

In lending (as in life), lenders who try to play the game of "get all the marbles you can" will probably not be in business long enough to count how few marbles they actually have accumulated. Consumers are becoming wiser where their pocketbooks are concerned, causing them to pick up the phone and comparison shop--especially for something as important as a mortgage.