Don’t Be Fooled By Mortgage Fees

For most people, a mortgage will be the largest single purchase in one’s life time; hence it’s important to understand all the fees associated with a mortgage loan. Some are easy to understand while some are not.

1. Discount Point

A discount point is considered a prepaid interest where lender charges borrower a fee to buy down rates. The lower the interest rate will be depending how much you are willing to pay. Discount point is tax-deductible as long as the mortgage is a primary.

2. Closing Costs

Understanding closing costs requires obtaining an extensive list of fees being charged to the consumer: typically origination fee, appraisal fee, credit report fee, title and escrow fee, notary fee, so on and so on. It is best to break it down to different groups and understand who charges what. For example: lender’s fees usually include origination fee (for underwriting and processing) as well as discount points and/or extension fees.

3. Things you can and cannot shop for

Appraisal company and credit reporting agency are two things that borrowers cannot shop for when obtaining a loan from a particular lender. Everything else for the most part is pretty much fair game including but not limited to closing services such as title, escrow, notary, etc. What you can and cannot shop for will be listed in the Loan Estimate.

4. Prepayment Penalty

In some cases, the lender will charge the borrower for paying off the loan early, typically seen in hard money lending. Beware of all the terms and conditions before signing yourself up for a loan that has a prepayment penalty clause.

5. Balloon Payments

A balloon payment is a payment at the end of an amortized loan in which it starts with interest only payments and eventually requiring the full principal payment at the very end. Most consumers are caught off guard as they were comfortable with the tempting lower payments at the beginning and didn’t expect a much bigger “catch up” payment when the term is up.

By understanding the complicated fees structure a little better, it might help consumers make a more informed decision when comparing between apples to apples while obtaining a mortgage loan.

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