can someone explain by getting a lower mortgage rate will make the originating fees go up .?

Question

i want to refinance my mortgage and i was given a quote on the interest rate, it was to high so i asked for a lower rate i was then told that my fees would be higher which makes no sence to me. can some one explain

Answer 1

The loan officer you are speaking to is in business to make money. They can either price the rate at a level where the bank pays yield spread- or price the rate where you are paying them origination fees. The more you pay upfront- the lower your rate will be. Talk to 2-3 other people and have them price it out for you as well as most loan officers have many different rates available to them.

It is always in your best interest to pay the origination if your plans are to keep the home longer than 2-3 years as the difference in monthly payment will pay off the origination fee in that time frame.

****ALSO**** The bond market is WAY down right now and the rates will be much better next week because of it. If I were you I would wait until Monday at least to get the rate quotes from other lenders. Watch the 10 year bond price- you can most easily access it on Yahoo Finance as it is listed right on top. When the bond market price is down- the mortgage rates will follow it down that day or the next.

Answer 2

Yes, the rate you were actually given was the rate with no origination.

When you asked for a lower rate, they quoted you a "buy down" rate. The cost of the buy down usually costs about 1% of the loan amount for every 1/8th point reduction (.125). Some lenders may calculate it differently, but this is the most common based on my experience.

Just make sure that they are explaining this to you fully. It looks like they are, because some shady lenders quote you the rate, charge a high origination, and never tell you what it's for.

A brokers commission is built into the rate, even if the origination is $0.00

It is illegal to charge a discount fee and add points "on the back" (called Yield Spread Premium or YSP), in the same loan. This changed about 3 or 4 years per Federal lending guidelines.

Answer 3

Rates are priced at various costs for various rates. For example, if 6.75% is at par (no discount points charged to lock the rate) then 6.5% will probably cost you a quarter of a point in closing costs to lock, .25 a half a point, etc. Each discount point is 1% of your loan amount.

This is no scam, it is simply the manner in which loans are priced by lenders so that borrowers may select the scenario that best suits their individual needs and is reflective of the lenders' contgractual agreements with the investors for delivery of loans at given rates.

You can tell if paying points or a portion thereof makes financial sense by computing the difference between the payments , dividing the cost of the points by the payment differential and then dividing that by 12 to see how many months it will take to recover the cost. If you are going to recover the cost to get the lower rate in a reasonable amount of time, it may make sense.

Be wary of those touting "I can get you the best rate". No one works for free and we all sell to the same investors, you'll pay for it somewhere.

Answer 4

It's a way for the lender to make money. The lender is charging you extra for getting better terms - Otherwise it won't make as much in interest as it would if you got a higher rate, etc.

Sucks doesn't it?

Answer 5

What is happening is likely that your loan officer is either buying down the rate meaning using points to buy your rate down below what you actually qualify for in his bank or he is just trying to get extra money from you. If you are looking for a free quote try submitting your information to www.restructureyourmortgage.com. Best of luck.

Answer 6

Mazziatplay is right on.

You are going to pay the lender at one end or the other.

And please don't go to bottom feeder mortgage lenders that spam in here for business.