Rates and Fees
Understanding Mortgage Rates
Figuring out what is a competitive rate is easy. You are already on the "Net" and comparison shopping is at your fingertips. However, understanding how rates are quoted and getting a good deal is a different matter. You see, it is not just the rate quoted but also the loan type, term and closing costs associated with that quote that determine whether you are getting a good deal.
Loan Type and Term - This is easy in today's market. Unless you are planning on holding your loan for less than five years then a 30-year fixed rate is the best deal. You get the security of a payment fixed for 30 years at the lowest rates available in years. Consider a 15 year loan if you can afford it and you want to pay your mortgage off in a shorter time frame. Only consider a shorter-term loan or an adjustable rate loan if it is the only way you can qualify and you understand the risks associated with the loan.
Closing Costs - Understanding closing costs is very important. A lower rate with very high closing costs may not be the best deal for you. Rate shopping is better called "closing cost shopping" and the more you know, the better off you will be.
The normal lender fee is called an "Origination Fee". It is represented as the reasonable charge of procuring, processing and closing your loan. This fee can range from 1% to 4% or more of your loan amount, a difference that may be many thousands of dollars.
Some lenders charge you whatever they think you will pay up to the legal limit. Remember that it is always your decision to pay or not to pay it. Because, you ultimately choose which lender you do business with, we encourage you to compare this cost carefully
Every lender will disclose fees for the appraisal, credit report, title insurance, escrow, tax service and flood determination. These fees are third party fees paid to others and do not increase the lenders gross income.
Other lenders choose to charge fees called Application Fees, Processing Fees, Document Prep Fees, Administrative Fees, Underwriting Fees, Closing Fees and so forth. Insiders call these "junk" or "garbage" fees, because they are merely ways of increasing gross profit from your loan by dressing up expenses with fancy sounding labels. A low interest rate quote loaded with junk fees may not be a good deal.