Types of Mortgage Rates and Fees
What Are Mortgage Points?
When you apply for a mortgage, the lender has to do a number of things to see if you qualify for a loan. This process, or “origination,” includes preparing, submitting, and evaluating your loan application. This generally includes a credit check, verification of your employment, and an appraisal of the property that you’re buying.
When mortgage brokers talk about ‘points,’ they are referring to the “origination fee” that the lender is going to charge you for originating a loan. Points are generally paid at closing.
Fees: They Can Add Up Quickly
A home loan often involves many fees, like points, loan origination or underwriting fees, broker fees, as well as transaction, settlement, and closing costs. Every lender or broker should be able to give you an estimate of its fees. Many of these fees are negotiable.
Think of it this way: if you don’t ask to have fees reduced, a broker or lender isn’t likely to give you a break.
Some fees are paid when you apply for a loan (such as application and appraisal fees). Others are paid at closing. In some cases, you can borrow the money needed to pay these fees, but doing so will increase your loan amount and total costs. “Nocost” loans may be available, but in reailty, they do have a cost: generally in the form of higher interest rates.
Ask for an explanation of any fee that you do not understand. You’re making a big investment in your new home. Why shouldn’t you know the fees folks want to charge you to make that happen?
Get the Best Deal That You Can
Once you know what each lender has to offer, negotiate for the best deal that you can. On any given day, lenders and brokers may offer different prices for the same loan terms to different consumers, even if those consumers have the same loan qualifications. The most likely reason for this difference in price is that loan officers and brokers are often allowed to keep some or all of this difference as extra compensation.
Generally, the difference between the lowest available price for a loan product and any higher price that the borrower agrees to pay is an overage. When overages occur, they are built into the prices quoted to consumers. They can occur in both fixed and variable-rate loans and can be in the form of points, fees, or the interest rate.
Whether quoted to you by a loan officer or a broker, the price of any loan may contain overages. Have the lender or broker write down all the costs associated with the loan.
Then ask if the lender or broker will waive or reduce one or more of its fees or agree to a lower rate or fewer points.
You’ll want to make sure that the lender or broker is not agreeing to lower one fee while raising another or to lower the rate while raising points. There’s no harm in asking lenders or brokers if they can give better terms than the original ones they quoted or than those you have found elsewhere.
If they promise you a reduction in fees or the loan rate, get it in writing.
Get a Lock-In Rate in Writing
Once you are satisfied with the terms you have negotiated, you may want to obtain a written lock-in from the lender or broker.
The lock-in rate should include the rate that you have agreed upon, the period the lock-in lasts, and the number of points to be paid. A fee may be charged for locking in the loan rate, and it may be refundable at closing.
Lock-ins can protect you from rate increases while your loan is being processed; if rates fall, however, you could end up with a less favorable rate. Should that happen, try to negotiate a compromise with the lender or broker.
A mortgage involves the transfer of an interest in land as security for a loan or other obligation. It is the most common method of financing real estate transactions. The mortgagor is the party transferring the interest in land. The mortgagee, usually a financial institution, is the provider of the loan or other interest given in exchange for the security interest. Normally, a mortgage is paid in installments that include both interest and a payment on the principle amount that was borrowed. Failure to make payments results in the foreclosure of the mortgage. Foreclosure allows the mortgagee to declare that the entire mortgage debt is due and must be paid immediately. This is accomplished through an acceleration clause in the mortgage. Failure to pay the mortgage debt once foreclosure of the land occurs leads to seizure of the security interest and it's sale to pay for any remaining mortgage debt. The foreclosure process depends on state law and the terms of the mortgage. The most common processes are court proceedings (judicial foreclosure) or grants of power to the mortgagee to sell the property (power of sale foreclosure). Many states regulate acceleration clauses and allow late payments to avoid foreclosure.
Three theories exist regarding who has legal title to a mortgaged property. Under the title theory title to the security interest rests with the mortgagee. Most states, however, follow the lien theory under which the legal title remains with the mortgagor unless there is foreclosure. Finally, the intermediate theory applies the lien theory until there is a default on the mortgage whereupon the title theory applies..
Reverse mortgages are becoming popular in America. Reverse mortgages are a special type of home loan that lets a homeowner convert the equity in his/her home into cash. They can give older Americans greater financial security to supplement social security, meet unexpected medical expenses, make home improvements, and more.
Unlike a traditional home equity loan or second mortgage, however, no repayment is required with a reverse mortgage until the borrower(s) no longer use the home as their principal residence. HUD's reverse mortgage provides these benefits, and it is federally-insured as well.
With a traditional second mortgage, or a home equity line of credit, you must have sufficient income versus debt ratio to qualify for the loan, and you are required to make monthly mortgage payments. The reverse mortgage is different in that it pays you, and is available regardless of your current income. The amount you can borrow depends on your age, the current interest rate, other loan fees, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow.