All mortgages have closing fees. Often you will hear advertisements of no closing costs loans. Often the closing costs are included in the interest rate through the Service Release Premium (SRP) or Yield Spread Premium YSP. It is in the borrowers interest to compare the upfront cost vs. the long term cost.
Often two lenders could have quite different interest rates for essentially the same program. One of these lenders might prefer to buy fixed rate conforming mortgages, while the other might prefer adjustable rate jumbo mortgages. This is basic economics.
“Points” are used to “buy down the interest rate directly or indirectly”. Points may be expressed as discount points, origination fees, broker fees or borrower paid . This is a simple concept that we have seen abused without the knowledge of the borrower. The borrower must educate themselves about all aspects to the lending process. Many states and lenders have regulations in effect to limit the abuses. “Points” are more advantageous on a purchase than a refinance because of the tax implications. (Consult your tax advisor for details).
Paying “Points” on a refinance can be expensive in the short term. It generally takes 58 months to recoup the cost of paying points. The borrower must ask themselves if the money used to pay the “Points” could be better utilized. To calculate the time savings on your loan you need to calculate your monthly payments for the two interest rates, with and without points, then divided the difference of the two payments into the dollar cost of the points. If it is going to take you 61 months to recoup your points and your intention is to sell the property in 3 years you would be losing money. (Consult your tax advisor or you’re CFP)
Nothing is free. All lenders have fees, one way or the other you are going to pay for something. The lenders fees need to be in line with the industry averages.
Ask for both a Good Faith Estimate (GFE), GFE Worksheet or a Loan Estimate (after October 3 2015). If a lender or Bank attempts to charge you any fee for these items, immediately file a complaint with the CFPB at www.CFPB.gov. Lenders should not be taking any fees, except the actual cost of a credit report, from you prior to three (3) days after the application. The worksheet will give you an itemization of the total closing cost, from both the lender and the closing agents. Also included with be the estimated escrows.
If you are refinancing, include up to sixty days of interest per diem, assuming you do not want to bring a mortgage payment to closing. On a Purchase assume at 30 days per diem, although it may be less.
Title Insurance rates are often set by the State. These lenders have discounted access to the large pool of mortgage funds available to all lenders.