Every week I receive updated interest rate quotes via e-mail from my two favorite mortgage lenders (both of whom will soon be Contributors to this Blog). Each quote, of course, identifies the current rate for Jumbo (>$417,000) and Conventional (<$417,000), 30-year and 15-year fixed rate mortgages, as well as rates for various (and many) other types of loans. What IS NOT clear in these quotes is whether (or not) the rate assumes any so-called "Loan Origination Fees" or "Discount Points". It's the same for most mortgage rate quotes I see in the newspaper and elsewhere. It may say "No Points", for example, but that does not mean there are not costs. I need to make certain that when my clients ask me where rates are at any given moment (which occurs frequently), I can provide them with reliable data. So I called to confirm what, if any, fees are assumed in the rate quotes and found out the following: Quote for a 30-year fixed rate, no Discount Points, Jumbo mortgage (last week, both mortgage companies) = 6.5%. HOWEVER, both companies also assumed a 1% Loan Origination Fee in that rate, which is apparently a fairly common practice for most lenders. It turns out that a true “no cost” rate for a Jumbo loan was actually 7% (note: there are still costs, but not nearly as significant).
So, if you are thinking about a home purchase, make certain to take this into consideration as you work through your calculations. And do not hesitate to ask your lender (earlier rather than later) to clarify ALL potential fees associated with a particular loan. Depending upon your own personal situation, Loan Origination Fee’s and/or Discount Points may (or may not) make sense.