Some mortgage lenders are offering what sound like enticing features on new and refinanced mortgages, but that may end up costing borrowers money.
Bank of America promotes mortgages with $0 origination fees on various types of mortgages through October 31. Other lenders including Keller Mortgage, Reali Loans and Wyndham Capital Mortgage also offer no-origination-fee mortgages.
Lenders typically charge between 0.5% and 1% of the total loan up front to process mortgage applications, which would translate to between $1,250 and $2,500 on a $250,000 loan. Potential problem: When mortgage lenders offer low or no origination fees, they may make up for it by charging higher interest rates.
Other lenders are trumpeting their ability to close mortgage loans quickly—potentially 21 days or less. These speedy lenders include LoanDepot, which offers mello smartloan, and Chase Home Lending. Potential problem: A lender might emphasize speed because it doesn’t offer the best rates, and borrowers who are in a hurry are less likely to shop around for the best loan terms.
When comparing mortgages, weigh both interest rates and fees (some mortgage fees might be referred to as “points”). Keep in mind that the interest rates listed on a lender’s website might not be the rates you are offered. To get these, request official loan estimates from multiple lenders. Use an online mortgage calculator, such as the Closing Cost Calculator on my website to compare terms.
As a rule of thumb, low- or no-origination-fee mortgages are most likely to be a good choice if you cannot afford to pay up-front fees…if not paying up-front fees allows you to increase the size of your down payment enough to avoid paying for private mortgage insurance—usually that means a down payment of at least 20%…and/or if you expect to sell the home within five years or so.
The longer you expect to remain in a home, the more your priority should focus on minimizing interest rates. A lower interest rate means lower payments every month, which matters a lot when you’ll be making those monthly payments for decades. Lean toward lenders who stress rapid closing speeds only if you have a specific reason to need a quick closing, such as a seller who demands a fast transaction or your prior home sold faster than expected.
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