When you contact a lender to find out the current interest rate and fees, be aware that what they quote you might be good right at that time only, and in order to obtain your business, some lenders will estimate costs on the low side knowing that if you initiate the loan with them at a later date, those previous figures will be dated and they won't have to honor them. Also, be sure to ask your lender for a "good faith estimate" which will show you the true cost of your loan. You are entitled to one, and it is especially useful if you are trying to compare lenders - apples to apples.
And don't be afraid to look your lender in the eye and ask them if the loan they are suggesting is the best possible loan for you, or the best loan for them or their company.
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Mortgage lenders can get hourly computer updates on the current Par rate, the lowest rate available for a home mortgage or refinance. You have every right to see the current Par rate so you can make a wise decision on whether to go for Par or buy down your loan by paying points.
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Yield Spread Premiums (YSP) are payments the mortgage lender receives for selling you a higher interest rate than you could qualify for. This is, in essence, a kickback lenders can get that won’t be disclosed until closing. Although this is not money directly out of your pocket, you will pay the difference by paying higher interest rates every mouth for the life of your loan.
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Discount points are actually pre-paid interest amounts that can be used to buy down or lower your interest rate over the life of your loan. Make certain you know what the current Par rate is when making your decision about whether to pay discount points. Otherwise, you won’t know if your points (usually 1% of your total loan amount) are actually being used to reduce your interest rate or being put in your lender’s pocket.
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Flat fee lending allows you to know exactly how much your loan will cost you - to the penny. Be sure to find out what extra costs (such as document preparation fees, underwriting fees, and wire fees) other mortgage lenders will charge you. Otherwise you might have some nasty surprises at closing.
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Service Release Premiums are additional fees mortgage lenders can receive for giving another company the right to collect your mortgage payments. This fee is really another hidden kickback many mortgage lenders get.
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The Lock Period is the amount of time that a quoted interest rate/discount point combination can be guaranteed. The shorter the lock period, the lower the rates. If you don’t close within the Lock Period, you’ll be subject to a higher interest rate if the market rates have gone up.
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Some mortgage lenders secure appraisals and credit reports for the borrower, then mark those costs up. Make certain you are only charged the actual cost for those necessary services.
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Most mortgage lenders charge an Origination Fee to secure financing for your home. If the amount charged is more than 1% of your total loan, you need to find out why.
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Junk fees are all those small items, such as warehouse fees, document preparation fees and messenger services that most lenders add On to their origination fees. Some mortgage lenders mark these fees up to generate extra profit. Make certain you find out what fees you’ll have to pay - and make certain they’re not marked up!
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Securing a home mortgage or refinancing your home can be a confusing experience. Most mortgage lenders quote you a low rate, then make up for it by adding on junk fees or securing one of two forms of kickbacks available to them. |
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