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There are many fees and costs built into your home loan. It’s important to be aware of these fees and understand them so there are no surprises during the closing of your home loan. Home loan costs and loan fees are a necessary evil in obtaining and processing your home loan, yet some fees may be negotiated with your home loan advisor.
Interest Rate – The most widely known fee is the interest rate, or the percentage of the loan you’ll pay in the amortization of your home loan. For a fully amortized loan, each monthly mortgage payment will consist partially of interest based on this rate and partially of principal, reducing the total principal debt balance. Don’t confuse the interest rate with the APR or Annual Percentage Rate, they are two different things. An APR or Annual Percentage Rate is the real cost of the home loan and is calculated to include all other fees (such as interest points paid and loan broker fees) associated with the home loan according to uniform standards so you can truly gauge what the loan will cost you.
Points – Points are a percent of the total loan that you may pay up front in conjunction with the home loan to reduce or “buy down” the interest rate. For most people, paying points isn’t a beneficial financial strategy. For those who need the short term tax benefits associated with paying points and plan on staying in the home for the life of the home loan, paying points may be of some financial benefit.
Other Third Party Fees – Some direct mortgage lenders or home loan brokers may try to add in what they call “Other Third Party Fees” and sometimes wait until the end of your home loan closing to do so. It’s important to ask up front what other, if any, third party fees will be assessed to your home loan.
Closing Costs - The sum of all fees associated with the placement of your home loan. Closing costs range anywhere from 1% to 4% of the total home loan amount, and consist of:
