An all too familiar story that helps explain how we got into this mess today, but the lessons are as relevant today as they were then. Originally published on January 25, 2006.

The real estate industry has created millions of jobs, and for many of those in the industry, it has also created a great deal of wealth. It was not until recently that I fully appreciated the kind of money that is to be made by the players in real estate. As an entrepreneur myself, I encourage those who dedicate themselves to a trade or profession to reap the rewards of their efforts.

However, we have to be aware that some people are motivated to pad their wallets and not provide us with the best advice. I recently have been awakened to these less than honorable business practices that created wealth for the ‘advisers’ at the expense of people who do not read the fine print. Recently, a friend was misguided while refinancing his home. His experience opened my eyes and made me more determined than ever to inform and educate so you will not suffer his same fate.

His story, unfortunately, is not uncommon. He had recently refinanced his home from someone who offered the lowest rate - as many people have over the past few years with interest rates near historic lows. But as soon as he closed on his new loan, he knew something wasn’t right. He gave me a call. I only wish he had called before and not after his settlement.

He was intrigued by the lowest rate – which of course can be tempting. But someone recommended a loan that did not meet his individual needs. A loan that did not agree with his financial goals. Sadly, a loan that created a setback from building wealth.

After reading the fine print, his total cost to refinance was much higher than it needed to be. It turns out that on his $350,000 loan, he wound up paying more than $10,000, or three points, in addition to the standard settlement costs. In his case, the individual offering the loan was more interested in making money than providing valuable advice and good service.

But that was not all. He was put into a two-year ARM (Adjustable Rate Mortgage) - where the payments can adjust after the first two years. And, the interest rate was higher than market rates. Even though, ARMs tend to have lower rates than longer term loans such as a 30-year Fixed Rate Mortgage (FRM), his two-year ARM was at 6.609% while 30-year FRM markets rates are still as low as 6.00%.

Unless interest rates go down in the next two years, he could be forced to refinance all over again within 24 months, which makes this an even more costly mistake. There was no reason for him to be put in such a short-term solution when a 5-year ARM or 10-year ARM would have been more appropriate. What’s more, he has stellar credit so he should have received the best interest rate – not something so out of line with the market.

The simple fact is he made a very bad decision. The more I learn about the real estate business from my own experiences and talking with hundreds of people about their own encounters, I encourage everyone to look beyond the interest rate. Too often the lowest rate wins at the expense of the best financing decision. And, as with any profession, there are some players who can be extremely greedy and will stop at nothing to make a quick buck. These people will put uninformed consumers – like my friend - into loans that pay them the most rather than recommend what is in customer’s best interest.

To ensure that you are being given a fair deal – and one that makes sense for you – it is important to review your Good Faith Estimate (GFE) before going to settlement. The GFE is only an estimate but it will be a good benchmark of what your final deal will look like. If it differs too much from your HUD1 Settlement Statement – be careful. It is important that you take the time to carefully review these documents before signing. As importantly, if the deal doesn’t make sense – don’t sign the documents. I repeat – do not be pressured to sign something that will put you in financial jeopardy.

Here is what you need to look out for: origination points and other fees. If you have “discount points” make sure those are being used to buy down the rate – otherwise they might be an origination point in disguise. The total of these gives you an idea of how much could be going to your advisor. In addition, there often is another line item - POC - or Paid Outside of Closing. The POC figure may look like a credit to you – but this amount is being paid to your advisor by the bank who winds up funding your loan. Most of these fees are negotiable which can help you keep your total cost down and even get a better rate.

At the end of the day, we have to take responsibility for our finances. As with anything in life, we have choices. We have choices about who we turn to and who we seek advice from. Too often, we spend more time researching where we can get the lowest interest rate rather than where we can get the best overall deal for our needs and our situation. In fact, the more I learn about the business, the lowest interest rate does not always matter. I can not stress this enough. The program, the terms, the service, and total cost most often are more compelling.

Unfortunately, so many of us were lured in a few years ago by the lowest interest rate – often by someone we have never met or by an unknown company we found on the Internet. We were so proud of how low our rate was that we didn’t take the time to read the fine print about the terms, conditions, fees, etc. Why do we spend more time researching plasma TVs and new cars than seeking sound financial advice for the largest investment we will have? Remember, we have to proactively manage our assets as well as our debts.

So what does all of this mean? It is our responsibility to not become victims like my friend. Only we can take the time to find and use trusted advisers who have our best interests in mind. If we take care of our finances, they will take care of us.