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I used to be a mortgage broker so I know exactly how THIS game is played. As a consumer there are certain things you need to know to protect yourself before you sign on the line(s).
Points - 1 point = 1% of the loan amount. Loan is $200,000 and someone wants to charge you 2 points, you will have $4,000 charged to you either up front (purchase) or in the loan refinance.
Closing costs - There is no such thing as NO closing costs. they are paid by someone. Either you will pay or your lender will charge a higher interest rate and pay out of their Yield Spread Premium.
Yield Spread Premium (YSP) - The amount the bank pays the broker for an interest rate on a loan. Typically a good YSP paid to the broker is 1.5% Make sure you see the YSP $ amount on your Good Faith Estimate (GFE) before you sign. If it is not there, do not sign it. Having the YSP $ amount shown to you is LAW.
If you see your YSP $ amount 1.5% times your loan amount and you are not paying closing costs, question the rate. If you are paying points, then you are buying down the rate and your broker should be receiving little to no money in YSP.
Now, you can have both. You can have .75% in points and your YSP $ amount equal to .75%. If you see 1-2 points charged and a hefty YSP amount contact me, I will have you talk to someone very reputable in the business.
Title fees - These fees are third party fees and are not lender closing costs. They are included in closing fees but they are a third party fee.
Interest rate - When you see an interest rate advertised in the newspaper or any media outlet, this is advertised at the 1.5% YSP rate to the broker. Typically these go in at the beginning of the week to the media source (paper) and come out Friday. Unless their is a drastic change, the rate going in on Monday or Tuesday is close to the Friday rate. Be cautious and do your due diligence when being quoted a rate you saw in the paper.
The above mentioned scenarios are Conventional/Conforming rates. A paper - Great Credit
FHA may be different. Do not fall into the trap that the rate will be higher because you are putting little money down. YSP pays a little more to the brokers, but still ask and see what the amount will be on the GFE. Watch for points up front and YSP.
FHA requires an Upfront Mortgage Insurance Premium (MIP), requires escrow set-up and has a monthly insurance payment on the mortgage. Once you get to a certain Loan-to-Value (LTV) amount, the monthly mortgage insurance payment can go away so contact your lender.
***Do not fall into the trap of upfront points on top of the Upfront MIP and escrow set-up.*** Very costly!
Escrow - Depending on the month you close (refinance) will determine how many months of taxes and insurance will be rolled into the new loan amount. This is county specific. Remember, watch for points and heavy escrow amounts.
Payoff - Your payoff amount will be your mortgage balance plus one month. This will give you a month without paying. Remember, you will always pay somewhere.
I hope you received quality education in this post. Consumers, stay on top of your lender.
Happy Investing!
Tony
