Q: On a recent radio program, I heard one of your listeners say he would be refinancing soon. He was going to pay about $3,300 in closing costs and was getting an interest rate of 5.5 percent.

I’m doing the same thing. Why am I paying $4,901 in closing cost to get the same 5.5 percent rate? Is this predatory lending?

A: It’s extremely difficult to compare why Borrower A is paying one amount in closing costs compared with Borrower B. There are many items that can change how much you’re paying for closing costs including where you’re buying the home, the amount of prepaid interest on the loan, the size of your loan, your credit score, and whether you’re paying points to buy down the rate.

But one thing is clear: Predatory loans look entirely different than the situation you describe. A borrower taking out a predatory loan might pay $10,000 in closing costs, 2 to 4 points (a point is one percent of the loan amount) and get an interest rate that looks similar to what you’d pay on credit card debt.

In the conventional mortgage world, there are many reasons why Borrower A’s rate and loan terms are different from Borrower B’s rate and terms. In some cases, real estate tax and insurance escrows are factored in by borrowers in determining what they will need for the refinance closing and those costs can vary greatly between homes and between homes in different states.

More likely if everything is the same, the credit score of the person refinancing may be lower, the person may have decided to buy down the interest rate of the loan by paying points, or the loan balance that the person is obtaining is higher. In some cases, if you refinance at the beginning of a month, your closing costs or cash that you will need to bring to the closing will be higher.

It’s also possible you didn’t shop around carefully enough for lenders and some of the fees charged by one lender are higher than another. Or you had the unfortunate luck to lock in just as rates jumped up again. You should take a careful look at your good faith estimate and discuss the situation with your lender.

Feb. 27, 2009