Rates and fees explained.

Lets say you call a bank and ask for the rates on a loan. First know that the Bank ONLY has THEIR rates and you have no shopping going on. A Broker on the other hand may have as many as 200 lenders in their date base from which to choose.  The good ones have computer sorting to find the best ones each day!!!

They may quote you a rate and you have no idea what that means.  You may think you know but you DON'T. They will quote a rate with high fees so the rate sounds low.   They will assume your credit score is over 750 which is where the best rates are.  You may get much less. This tactic is to get you in to fill  out an application.  DON'T FILL OUT ANY APPLICATIONS till you are sure you want to  proceed to close with that lender.  Read the next blog to understand why.

The "PAR" rate is one that you should understand. Always ask for this rate when making comparisons.  This is the interest rate you get with no origination fees.  This means that the bank is making enough on the YSP (read the previous blog to understand YSP) to NOT charge you the origination fees they have.  The title company and title insurance fees, appraisal fees may  still be charged.

Now, think 7 years.  This is the number that buyers of the loan use to establish their returns on their purchase.  Buyers are Huge outfits like Fanny Mae etc.  They buy blocks of loans for hundreds of millions of dollars at a time.  The typical loan lasts 7 years so they use that to determine what to pay for the loan.

You should also consider that 7 year number when deciding on what rate you want.  The available interest rates are a sliding scale with the lowest rate corresponding to the highest loan fees. No fees means a higher rate.  For instance, if you are offered a 3% loan it may have a cost of 2 points plus  you pay all the loan fees.  If you intend to keep that loan beyond the 7 years, you may come out ahead by taking the rate with lots of up front fees.

 A "no out of pocket closing cost loan" can mean that all those fees are ADDED TO YOUR LOAN BALANCE.  Beware of this.  If you were to pay off the loan via a refi in a few years you will LOOSE all those fees, which could be around $10,000.  If  you plan to sell, refinance or  pay it off soon, take a little higher rate with all the fees paid by the bank. A no closing cost loan!!

A no closing cost loan means that the interest rate is raised enough so the the higher corresponding YSP is high enough to pay all the fees, including the title, appraisal etc.  In this case you will  pay a  higher interest each month, but have not added any of those fees to  your loan balance. This is the choice to make if you intend to pay it off soon.  ***If you know you will  refi or pay it off in a couple years, ask for a Binder Policy from the title company. You will pay 110% for the insurance policy but get a 100% refund toward your refi later.  Hardly anyone knows of this. Could save you a thousand bux!!

Shop all your sources the same day!!!  The rates change daily, sometimes a couple times a day.  To be fair to your self and the brokers, compare companies on rates quoted on the same day.  Obviously this is a huge task that can take all you time.  Using a Broker with computer sorting can do it for you in a flash.

How much can you save?. LOTS!!!   I see folks save a full 1/2% on the interest rate -which amounted  $1200 per year, and got the borrower an additional $2000 from the YSP toward closing costs.  This is  compared to three of the nation's biggest lenders.

My email is :  ctinej@hotmail.com