At Opes Advisors, our Mortgage Advisors are often asked, “Why are there different prices for the same loan?”
The answer is dependent upon choices you make for the transaction and your current financial picture. You can choose to have a lower interest rate and monthly payment, or, have a lower cost for your transaction and cash needed to close by having a higher interest rate and therefore higher monthly payment.
For example, you can choose a no-cost refinance. The base costs for refinances are approximately $3,000 to cover loan fees, escrow fees, title fees, recording fees, etc. In the case of a no cost refinance, the lender pays the fees. In return, you pay a higher interest rate. As the interest rate increases, lenders are paid what is called a rebate, or yield spread premium, for the higher rate. This premium from the higher rate is used to pay the loan fees on the transaction. In other words, “no cost” refinances, translate too: there are costs but they will not be paid by you in cash but rather will be paid for you by a higher interest rate.
Not all loans are the same, and neither are the borrowers – mostly due to perceived risk and history. Because of this, there are pricing adjustments for different factors in a mortgage file and factors such as FICO scores, type of property, type of transaction, and loan-to-value can swing the overall cost of the transaction considerably. A borrower with 800 FICO scores purchasing a single-family residence with 30% down payment getting a $400,000 mortgage will not get the same rate at the same cost as a borrower with 640 FICO score purchasing a condominium with 20% to use as a rental with a $400,000 mortgage. Since the investment condo buyer is a higher risk his cost for the same rate will be higher.
When researching your mortgage make sure the definitions of “no-cost” are the same for everyone you may speak to, some include third party fees such as escrow and title and others do not. Ignore the terminology and get information on what your cost out of pocket, or added to your loan amount, will be for what rate. And through it all your Mortgage Advisor is here to help.
While Opes Advisors, a division of Flagstar Bank, Member FDIC, uses all reasonable efforts to ensure that this information is current, accurate and complete on the date of publication, no representations or warranties are made (express or implied) as to the reliability, accuracy or completeness of such information. Opes Advisors, a division of Flagstar Bank, Member FDIC, therefore, cannot be held liable for any loss arising or indirectly from the use of, or any action taken in reliance on, any information appearing in this email.