Star Tribune, Minneapolis, John Ewoldt column [Star Tribune, Minneapolis]

Aug. 29--When Smokey Robinson sang, "My momma told me you'd better shop around," some of us thought he was crooning about goods and services, not a spouse. Shopping around is still a bargain hunter's best tool. Yet some consumers seem to get a bigger kick driving a mile or two to save 50 cents on a gallon of milk than thousands on a major purchase. Don't be a penny-wise-pound-foolish victim.

The time to kick it in gear is on major purchases -- a car, insurance and especially a mortgage.

I recently shopped around for a new mortgage and found rates ranging from 4.0 percent with a 1 percent loan origination fee to 5.29 percent with 2 discount points. That's a difference of more than $47,000 in interest over 30 years.

I called a variety of small and large banks and brokers after a recent article in the Wall Street Journal showing that some smaller banks are offering much better rates than big banks. I tried a mixture of small and large banks and brokers.

Unlike what the Journal found, I discovered rates at small and big banks to be a mixed bag. Some big banks were competitive and some small banks weren't. While my comparisons show that a quarter of a percentage point difference is common, it's only half the story. Comparison shoppers must also get a good faith estimate to compare closing costs, which can vary by hundreds, even thousands of dollars.

But getting the good-faith estimate usually requires a credit check. If you're worried that multiple lenders looking into your credit will lower your credit score, don't be. FICO scores ignore all mortgage-related inquires posted to your credit report in the past 30 days, said Craig Watts, public affairs director at FICO, a credit risk measurement company.

In fact, the FICO score ignores rate shopping inquiries for auto and student loan inquiries, too, he said. Thirty or more days later, all of those inquiries are counted as one.

For more information about how rate shopping affects a credit score, go to www.myfico.com/crediteducation/creditinquiries.aspx.

In the past, when rates were at historic lows, loan departments were so busy that calls weren't even returned. Refinancings are up, but I had few problems getting through to most loan officers after a brief hold. In 90 minutes on the phone, I received five different interest rates from seven banks. Even if the interest rate difference is only [ of a percentage point, that's a savings of more than $4,000 in interest on the 30-year loan I inquired about.

If you're looking to refinance instead, you can still call around for the best rate but expect rates to be about percentage points higher than for a first-time loan. Homeowners with little or no equity probably won't qualify for refinancing. No-cost or low-cost refinancing deals will result in a higher interest rate. The rule of thumb is to consider refinancing only if you can lower your interest rate by 1 percentage point.

John Ewoldt --612-673-7633 or [email protected]. If you spot a deal, share it at www.startribune.com/dealspotter.

COMPARING RATES

Mortgages Unlimited (Maple Grove, 763-416-2620, www.muihomeloans.com) 4.0 percent

Bremer Bank 4.125 percent, with a 0.75 percent loan origination fee

Highland Bank 4.125 percent

U.S. Bank 4.125 percent, with a U.S. Bank account

M&I Bank 4.25 percent, with an M&I account

Wells Fargo 4.375 percent

TCF 5.29 percent, with 2 discount points

On Wednesday afternoon, I called lenders and asked for a quote given the following: a $170,000 30-year fixed-rate loan, a downpayment of more than 40 percent, a credit score of 800 and a 1 percent loan origination fee unless otherwise noted. Closing costs were not compared. Rates can vary by the hour, but your own interest rates depend on multiple factors, including credit history.

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