Loan fees: are you paying too much?

If you've ever taken out a home loan, you know how confusing it can be to compare loan costs because not all lenders charge the same fees. A recent article in the Seattle Times/P-I explains that lenders derive their profit from two sources. First is the interest from the loan itself. Second is revenue from a variety of fees that are wrapped into the cost of the loan and paid at closing. Some fees are considered (by those of us not in the lending industry, at least) to be"legitimate" fees and others are considered to be "junk fees." The term "junk fee" refers to a fee for a service that doesn't really cost the lender much, if anything, on his/her end and could reasonably be expected to be part of normal service. For example, application fees, processing fees, document preparation fees, notary fees, etc.

You are probably aware that there is a difference between the loan rate you are quoted (the average rate for a 30-yr. fixed-rate conventional loan was 6.35% this week) and the APR (annual percentage rate) you actually pay. This is because the "actual APR" includes the costs of all the additional fees, whether they be legit or junk.

Here is a handy rule-of-thumb quoted in the aforementioned article: "If the APR is .75 to 1 percentage point higher than the interest rate you were quoted, chances are the loan is stuffed with fees."

How about it, lenders? If you are reading this, please comment on how you see things from your point of view.