Most borrowers do not truly understand how mortgage loan are priced; they simply ask for the "lowest interest rate" and a "no cost Loan". This sounds fair and good but, unfortunately, these they are mutually exclusive. Why? For all Lenders there is a direct relationship between the interest rate versus the loan costs.
% versus $
The lower the interest rate - the higher the loan cost.
The lower the loan cost - the higher the rate.
For a basic example, on a 30 year fixed rate program - an interest rate that is .25% lower may cost $2,000 in loan costs, whereas an interest rate at .25% higher may give you a "Lender Credit" of $2,000 to apply to loan costs to get your "no cost loan option"
Lenders daily have about a dozen different rate / fee options for each type of loan and they are in .125% rate increments. The lowest rate would have a substantial cost and the highest rate would offer a substantial Lender Credit. Somewhere in between there is a good, viable option for most borrowers.
What should you consider before you choose an option? The main factor to decide is how loan you plan on keeping the mortgage. The longer you keep a mortgage, the lower rate, lower payment and paying reasonable fees (added to the loan amount, not usually paid out of pocket) option makes sense.
Summary: all mortgages incur basic loan costs but it is the borrower's choice as to who pays them - the borrower (by adding to the loan amount) or the lender. You interest rate will determine this.
Please call me at (310) 293-6414 and i can answer any questions. It's important that all our clients fully understand their options so they can make the best decision on their next mortgage.
Mortgage Fees Explained
Do you understand the link between the interest rate and the loan fees?
What are basic Mortgage Loan Fees? Escrow, Title Policy, Underwriting, Processing, Notary, County Recording, Tax Service, Flood Certificate, Credit Report, Appraisal Fee (possible waiver), Wire Fees.
Note: the loan fees are usually NOT paid out of pocket but added to the loan amount.