The bubble has now burst! The interest rate quoted to you by your mortgage lender is not truly the rate you will end up paying in a vast majority of cases. You will actually be paying the Annual Percentage Rate (APR). Usually the APR is higher than the interest rate that was originally quoted to you. The reason for this is that the APR takes into account your loan amount less any lender fees and determines your true loan amount. The more lender fees that are included equation the less you are borrowing. Consequently this drives the APR higher. Even though lenders calculate this, they do not recalculate a new payment so the amount of interest you pay over the life of the loan is at a higher rate.
Usually the settlement costs included in calculating APR include the origination fee, any “discount” points (discounted rates that can be bought buy paying a percentage of your loan amount), any prepaid interest and escrow including Private Mortgage Insurance premiums. Also, generally included are fees charged to lock interest rates. If lenders could include all settlement costs in calculating APR, Truth in Lending would take on a whole new meaning. Subtracting more than a handful of these lender fees would cause APR to skyrocket on home loans.
At this time there is no concrete regulation in existence to determine which settlement costs should be included in determining APR. Your best course of action is to first decide if you will remain in the home throughout the entire loan term. If you think you will, APR is very important. Find out what fees your competing lenders subtract from the loan amount to aid in making your decision.