Mortgage Choice and Refinancing Flashcards
What is the difference between a contract interest rate and the effective cost of the loan?
Contract rate- what you are supposed to pay (index + margin)
Why is the APR advertised not the actual rate?
It ends up being higher because of loan fees and closing costs
2 classifications of loan fees
Origination fees and discount fees
What is a point?
1% of a loan
Origination fees
Always have these
Origination fee to loan officer
Processing fee to admin
Underwriting fee to approver
Discount fees
Discount points pay to discount the interest rate; doesn’t end up saving a lot
Loan fees paid to someone other than the lender at closing
Tax stamps (transfer) Termite Appraisal Credit report Flood certification Attorney fees Survey Prepaid insurance
How much are closing costs for a mortgage?
3% or higher
What is a prepayment penalty and on what are they paid?
Paying off a mortgage early
-Mostly on commercial
Refinancing
Changing your mortgage
3% or more every time (costly)
Why do borrowers refinance?
Lower payment Lower interest rate Lower the term Cash out Debt consolidation
When should a borrower refinance?
If they can save 1%
Savings > closing costs
What are the 5 things needed to calculate mortgage refinancing?
Old loan payment New loan payment Old loan balance Closing costs Savings per month
