Mortgage brokers do it by crediting back to you their YSP (Yield Spread Premium) commission from the lender for committing you to a higher rate of interest.
Banks do it by using their SRP (Service Release Premium) commission from Fannie Mae or Freddie Mac for committing you to a higher interest rate.
The difference is Mortgage Brokers must have you agree in writing to the amount of the YSP being paid by the lender. Banks are 100% EXEMPT from even telling about rate hikes. Keep in mind that even at a bank's "most competitive" rate, they still set the rates high enough to earn SRP commissions from Fannie and Freddie. With a bank you have no way of knowing the actual rate for which you qualify. And most bank mortgage sales reps recieve the bulk of their commission from rate hikes.
Regardless, many closing costs aren't included in these offers. Setting up your escrow for taxes and insurance is one example. In states like Florida, escrow deposits can be your largest closing cost.
One other note: You cannot deduct closing costs on your income taxes if the closing costs aren't itemized. "No fee mortgages" remove this tax benefit from you. For a long term loan, the write off on the higher rate will by far exceed the amount of closing costs you can write off each year, so it's not an issue.
On a shot term note, or with investment properties, your CPA might recommend a lower interest carrying cost and paying fees to best fit your situation.
Its great to be able to toot someone's horn other than my own ;)
They change the programs all the time but everywhere has to make money somewhere. The Truth in Lending Act requires that they give you all the info up front so that you can make an informed decision. Ask for the fees, interest rate, etc in writing and read it carefully. Many similar programs have fine print that says the fees are added to the principle amount. Don't be afraid to ask the direct questions of the loan officer. If they are making the interest over the life of the loan, they can afford to make it free up front, but as you said, check the interest rate too. As a realtor, the only problem we have with banks providing the loan is that they are usually salaried and not as motivated to close the loan quickly. You frequently don't have a designated person. With a commissioned loan officer, they are motivated to get everything done quickly and usually close on time. Hope this helps!
Diane Conaway, RE/MAX United, (760) 749-2888
Regardless of what a loan program is called, you want to shop APR's to make sure you are getting the best loan. The APR is the best way to calculate the total loan cost. Let me know if you have any specific questions that I can answer for you.
Bank of America Home Loans
San Diego, Ca.