“What Are the Costs if I Go with You?”

I wish more people asked that question when shopping for a mortgage loan.

Here’s how too many conversations start with someone calling to inquire about the rates I could offer them:

Caller: “What’s your rate today?”

Me: “Rates are based on credit score, loan amount, equity in the property, occupancy, and a few other criteria.”

Now that I’ve caught their attention, they happily provide the necessary information to get them an accurate rate. After I provide them the rate for their transaction, I hear too many times the following:

Caller: “Another company offered me a rate lower than what you’ve quoted me.”

Me: “I am sure they did. What were the costs associated with the rate they quoted you?”

Caller: “I don’t know. They just gave me the rate.”

Is it worth it to pay thousands to get a lower rate? Let review a quick example.

Bob wants to refinance his primary residence. His home on Maui is worth $780,000. He owes $530,000. His credit score is 724. For our example, we’ll estimate the closing costs to be $3,500 – excluding any points. The loan amounts in the table below show the loan amount increasing to accommodate the extra cost for points – except for the 2.750% rate. That rate has a lender credit that covers the closing costs.

From the table above, I would NEVER choose any rate other than the 2.750% rate. Is it worth it to pay almost $12,000 more in fees to drop your monthly payment by just under $80, and take almost 16 years to recapture that cost? No!

Hopefully, you can clearly see that a “rate” means nothing without knowing the “costs”. I hope you share this piece of advice with your friends and family. Don’t get duped by low rates. You need to compare all the rate options before deciding which rate option makes the most sense for you.

As I was doing the research for today’s topic, I was shocked to find that other direct lenders and brokers not only charge big bucks by way of points for lower interest rates, but many are now engaging in tacking on extra fees to earn more money per loan.

Many of these “upstanding” companies are charging their borrowers for “contract processing fees”. Every broker or lender has processing staff to push things along, but it has been many years since this fee was widely charged. It seems more and more companies are adding this $900-$1,400 fee to the cost of their client’s loans – all because they can, and get away with it. Another common fee added to most loans today is a mobile notary fee. These fees can range from $200-$300. In contrast, for our company, we never charge a processing fee and for our refinance clients, the first mobile notary fee is free!

My goal is to educate consumers, so they don’t get taken advantage of. If there’s one message I wish to convey to every person thinking of obtaining a mortgage – compare offers and ask lots of questions! Use the information above to ask your mortgage professional about the various costs, how they impact the final loan amount, and the recapture time to earn your money back. Also ask to see a list of fees they will charge you for their services.