If the lender had an accurate figure from the service provider and didn't use it, clearly the estimate was not made in good faith.

Why do some lenders do this? They know that many borrowers look at settlement-cost estimates in shopping lenders, so they want to make their figures as low as possible. Furthermore, they can almost always get away with it; it's very difficult to prove that an estimate was given in bad faith.

You have them dead to rights, however, because you can prove that the lender had the correct information in time to give it to you. Given that your decision to go ahead with this lender was influenced by the erroneous estimate, you should prevail if you take the lender to Small Claims Court.

You should also register a complaint to the HUD Office of Consumer and Regulatory Affairs, U.S. Department of Housing and Urban Development, 451 7th Street, SW, Washington, D.C. 20410. In addition, you should file a complaint with the government agency that regulates the lender. Here are Web sites you can use to contact these agencies:

For national banks, http://www.occ.treas.gov/customer.htm.

For federally chartered savings and loan associations, http://www.ots.treas.gov/contact.html.

For state-chartered banks and savings and loans, http://www.lendingprofessional.com/licensing.html.

For mortgage banking firms, http://www.aarmr.org/lists/members-IE.html.

In most cases, borrowers given an erroneous estimate have no recourse because there is no evidence of bad faith. This is one of the abuses HUD hoped to eliminate in its proposed package of reforms of the Real Estate Settlement and Procedures Act (RESPA), which is the federal law that governs the GFE. Because of the intense political pressure against it, however, HUD recently withdrew the proposal and there is no prospect that it will be enacted in the near future.

So borrowers have to take care of themselves, which is not easy. To my knowledge, there is only one lender that guarantees its settlement costs in advance: ABN AMRO, accessible on www.mortgage.com. I'll have some other suggestions for avoiding larceny at the closing tables in another column.

Pay points if you expect to prepay?

"I was planning to pay 1 point to reduce the rate on a new 30-year fixed-rate mortgage from 4.125 percent to 3.75 percent. I expectto be in the house about seven years. Using your calculator, I get a break-even of 34 months. However, I expect to add substantially to my monthly payment in order to pay down this loan faster. Will this affect my break-even?"

Yes, it will lengthen the period before you break even—meaning that paying the point is not quite as good an investment.

Points are fees the borrower pays the lender at the time the loan is closed, expressed as a percent of the loan. On a $100,000 loan, 1 point means a payment of $1,000. The more points a borrower pays, the lower the interest rate.

The benefit from paying points consists of the saving in monthly payment resulting from the lower interest rate, plus the lower loan balance in the month the loan is paid in full. The longer the borrower holds the mortgage, the greater the benefit.

On a 30-year loan paid off after seven years with no extra payments, the return on investment is about 24 percent. If you make extra payments during the seven years, equal to the difference in payment between a 30-year and a 15-year loan, the return drops to 20 percent. These returns were derived from calculator 11c on my Web site.

So prepayments reduce the return on investment, but not so much that you should reconsider your plan to buy down the interest rate. Twenty percent is an excellent return, especially in today's market!