Q: I understand that the D.C. City Council recently raised the usury law for mortgages in the District of Columbia to 11 percent. I don't understand why mortgages have to be so expensive. Shouldn't the ceiling be kept at 10 percent?

A: If only we could go back to those days of 5 1/2 percent rates on residential mortgages.

Unfortunately, like everything else, the cost of money is going up.

Usury laws go back in history to efforts by the church and religious leaders to curtail excessive money lending. But, as in the olden days, lenders have always created devices to avoid the statutory usury ceiling.

For example, if a lender makes a loan at the statutory maximum, but charges a "commission" of 3 percent to make the loan, the loan is clearly usurious. If a lender charges "points," this raises the effective yield to the lender - and thus the actual interest rate is also higher than that stated in the deed of trust note itself.

Thus, one should analyse usury laws in the context of the current money market. As we all knows, money is tight, and unless a lender can make a profit on the mortgage loan, there is no incentive to make these loans.

There are three basic sources for mortgage loans: banks, savings and loans, and mortgage bankers. When we put our moeny in a bank or a savings and loan association, we expect the highest possible interest rate to be paid on these savings. The bank's profits is the difference between their cost of borrowing the money from us as savers and the rate they are lending it out to us as borrowers.

Thus, as we keep increasing our demands for higher interest rates on savings, by definition the mortgage loan rates will also be increasing proportionately.

In the country today, because money is tight, investors will look either to those areas where there are no usury laws (such as in Virginia) or where the usury laws are high enough to provide a reasonable profit.

While it might sound good for the consumer if we went back to the old 10 percent ceiling in the District, the net result would be no mortgage money for home buyers in the city.

At the present time, the Mayor has not yet put his signature on the Council's act, but it is anticipated that the law will go into effect. This does not necessarily mean, however, that all interest rates in the District will automatically jump to 11 percent. In Virginia, where there is no usury ceiling on first mortgage loans, the rates are still hovering around 10 percent.

What should the prospective home-buyer do?

Clearly, now is the time for comparative shopping. When you make a mortgage loan application with a financial institution, insist on getting a truth-in-lending disclosure statement, which lists all of the hidden costs (if any) you will have to pay to get your mortgage loan. All of these extra costs are translated into the lender's "yield," which is labeled in bold letters on the disclosure statement as the "annual percentage rate."

Shop around. Negotiate the points, if any, with the lender. For example, if the lender wants to charge you one point at a 10 percent rate, you might find it more desirable to take a 10 1/8 percent rate with no points. If you are borrowing $80,000, one point is $800. If you raise the interest rate slightly, you will have to pay approximately $7 more for this loan.

Personally, I would rather pay $7 more each month, and not have to pay $300 (the one point) up front at the settlement. It will take you approximately nine years of paying the additional $7 per month to equal the one point payment.

Many leaders are willing to negotiate points for interest rate increases.

In the final analysis, while I would certainly like to go back to those good old days of low interest rates, I doubt that rates will drop significantly in the next several years. Thus, consumers must take it one themselves to make sure they get the best possible deal.