Updated Jul 19, 2013 - 9:20 am
Understanding mortgage lender fees
As you prepare to buy a home or refinance your current one, you're probably scouting for a mortgage with the best rate. Interest rates are a key consideration, but they shouldn't be your only comparative measure. So that you can compare fees from lender to lender, here are the most common fees associated with the closing costs of a mortgage:
Some lenders charge borrowers so-called "junk fees" such as application or administrative type charges. These aren't really junk, just additional fixed fees a lender has the latitude to charge although not all do so. Applied less frequently and calculated as a percentage of a total loan amount, some lenders charge an upfront "origination fee" for processing a loan application.
"Third party fees" for appraisal, title and credit reports are, in fact, levied by and paid to third party providers and not the lender. (Although these fees are line-itemed in lender paperwork.) Federal guidelines regulate third party fee structures and charges tend to be equitable per loan type across all lenders in the same geographic area.
Borrowers may arrange to pay extra points called "discount point(s)" to lock-in a lower rate of interest. Certain loan programs or products may also require discount point payments to secure a specific rate.
Annual Percentage Rate (APR) is probably the most recognized mortgage interest metric. APR is a mathematical calculation expressing the costs associated with a loan as the cost of credit in relation to the amount borrowed. APR costs include applicable points, junk fees, origination fees and other direct lender costs. APR is provided to borrowers at the beginning of the loan process in their loan disclosures.
For more advice on finding the best home loan, access our free eBook, How to Get a Stellar Home Loan: Six Steps to the Best Mortgage at the Lowest Rate with the Fewest Headaches.
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