Articles & Tips
Is It Just the Mortgage Interest Rate That Counts?
When you are in the market for a home mortgage, you might at first think that it's all about the mortgage interest rate. While this is a very important consideration, interest rates are not the only potential cost that can vary from one loan to another. These fees and closing costs can add up to several thousand dollars, so it's critical to know the purpose and amount of each of them.
Depending upon the specific mortgage lender and the state in which you live, the standard fees and closing costs for mortgage loans can include:
- Application fee, which is paid to the lender to accept your mortgage loan application;
- Credit report fee, the lender's fee to obtain a copy of your current credit report;
- Appraisal fee, which is the cost of having an official appraiser determine the cost of the house or condo;
- Loan origination fee, the cost to process the mortgage;
- Lock-in fee, which allows the lender to hold your mortgage interest rate until your loan is final (otherwise the loan interest rate can fluctuate till the end);
- Discount points, which are usually optional but allow you to pay upfront to reduce your mortgage interest rate for the life of your loan;
- Prepaid interest, the amount of interest on the mortgage from the closing of the loan until the first month's payment is due;
- Escrow fees, which pay for the escrow company to handle the financial transactions;
- Attorney fees, which are charged if you hire an attorney to review the contracts, negotiate with the seller, and/or handle the loan closing;
- Title search fees, which pay for the cost of a search for liens and encumbrances on the title of the property;
- Wire transfer fees, charged by the financial companies to transfer money; and
- Recording fees, which are the charges to have the sale recorded by the appropriate government office.
Not all mortgage loans will incur all of these fees; be sure to read all of the paperwork carefully in order to determine the exact costs in order to compare among mortgage loans.
By far the largest cost associated with your mortgage will be the interest paid over the life of the mortgage, so be sure to look carefully at the mortgage interest rate that is quoted by each lender. Ask them to calculate the annual percentage rate (or APR) for the mortgage loan, which is the best indicator of the actual annual cost of the mortgage.
© 2012 ApexRefinance. All rights reserved.