Shopping for home financing can be confusing and costly, especially if you stop searching as soon as you find the lowest interest rate!

What questions should you ask the lender, especially if the loan programs you're comparing have identical interest rates?

First, ask about discount points. A point is equal to one percent of the amount financed and is used to increase the lender's profit. No lender in his or her right mind would give you a 7 percent interest rate when the market rate was 8 percent. That's where points come in. They help you obtain a competitive interest rate and let the lender get the financial yield he needs to make the loan.

Now for the misconceptions. It's a misconception that points charged on a certain type of loan are equal between lenders--they are not. Additionally, it's a little-known fact that you can actually negotiate points with many lenders. In today's competitive mortgage market, some lenders are willing to negotiate points and part with some profit to get your mortgage business.

The second evaluation to make when comparing mortgages with the same interest rate is closing costs. These include document preparation fees, tax checking fees, and loan origination costs. This is yet another area where lenders differ widely and consumers can negotiate. Ask the lender to prepare cost comparison sheets between various loan programs you're considering. This will give you the true "bottom line" cost of each loan.

And don't forget to ask the lender if the loan requires private mortgage insurance, also called PMI. This insures the lender against your default in the early stages of the loan. Not only can it add several hundred dollars to your closing costs, but may continue to cost you $20 to $30 per month in your mortgage payment.

If interest rates and costs are equal between loan programs and lenders, consider any future lending needs you might have. For example, if you're thinking of buying a new car, it may make sense to establish a business relationship with the lender who could make both loans. Your mortgage leverage may actually increase if the lender anticipates future business with you.

Choosing a mortgage goes far beyond searching for the lowest interest rate. By evaluating the entire loan picture and asking the right questions, you can choose the best mortgage to meet your needs today and in the future!