Mortgage Info

It is very important to have some basic knowledge of what costs are involved in obtaining a mortgage so as not to be swindled on what you end up paying. Many mortgage lenders and companies charge “junk fees.” While there are pretty standard-type fees that you should be charged for establishing a mortgage, there are fees that many companies add just to make a few extra dollars off each client. After all, these companies are in business to make money.

Common Junk Fees
Unfortunately, “junk fees” are not going to be clearly labeled on a Good Faith Estimate (GFE) or Settlement Statement that you will receive prior to closing. Some of the labels that are used for “junk fees” include FedEx fees, courier fees, faxing fees (yes, they are charging you to fax documents), and document scanning fees. Most of the time these line items do not amount to a huge sum of money, but when you add them all up can become costly to your bottom line. For example, a courier fee may be $20, which doesn’t seem like a big deal. But when you add that $20 courier fee, the $45 FedEx fee, and a $50 document-scanning fee, now you are paying an additional $115 in fees that are not standard.

Discount Points
Another way that some mortgage lenders can leave you feeling suckered by their fees is by encouraging you to buy discount points or more commonly referred to as “buying down your rate.” This process involves you paying extra money upfront in order to get a cheaper interest rate on your mortgage. While this may in fact to be appropriate for some people, it is not the most cost effective route for most people to take.

For example, let’s say that you are getting a $100,000 mortgage and you have been offered a rate of six percent by paying a one percent origination fee (or one point), or you can buy down your rate to 5.5 percent by paying a three percent origination fee (or three points). At first glance, it may seem like a good deal because you are getting a .5 percent lower interest rate. The cost of obtaining that interest rate difference is quite high though.

For every point, you are paying one percent of your mortgage amount to the lender. So in this example you would be paying $1,000 to get the six percent rate, but would be paying $3,000 to get the 5.5 percent interest rate. However, the differential in your monthly mortgage payment is going to be approximately $40 or $50. Is it worth the extra $2,000 you will have to pay up front to lower your monthly payment by $40 or $50? The answer really comes down to the fact of how long you will have your mortgage. If you are only going to be in the property for a couple of years, you are never going to recoup the extra cost that you paid to get the lower rate.

Keep in mind, the national average says that every 5-7 years Americans either move OR refinance their mortgage. In this scenario, paying additional points to buy down the rate is like throwing money out of the car window and driving away.

How To Avoid Getting Suckered on Closing Costs
In order to avoid being a sucker, it is important that you review the fees that you are being charged by every party involved in your mortgage transaction. Go line by line on the Good Faith estimate (GFE) and the Settlement Statement. Put a mark next to those items that you cannot identify and then ask your lender what these fees are for. Knowledge is power. Make sure that you understand all of the fees that you are being charged and why you are being charged them. In order to avoid becoming the victim of being suckered, it is important that you pay attention to these details on the fees you are paying for your mortgage.

Resources

• Mortgage Loan Calculator (mortgageloan.com)
• Amortization Calculator (mortgageloan.com)