Interest Rates & Fees

Choosing an interest rate can often be the most confusing part of getting a home loan. With so many things to consider, it can be overwhelming to both first-time buyers as well as current homeowners looking to refinance.

Interest rates
Points
Rebates
Fees
What makes Affinity Lending unique?

An interest rate is a percentage of the mortgage amount that is paid to the lender for the use of the money, usually expressed as an annual percentage.

On a fixed–rate mortgage, the interest rate is preset for the life of the loan. On an adjustable rate mortgage (ARM), the rate is preset for an initial period, ranging from 1 month to 10 years, and then can change.

What are points and fees?

Points are the upfront charges expressed as a percent of the loan amount. Example: Two points amount to 2% of the loan.

Points are related to the interest rate. Secondary investors, like Fannie Mae, purchase loans from lending institutions. These investors offer the lender a wide array of interest rates their customers can choose from, which can change daily. Some rates are free to the lender and therefore the customer (par), some rates cost the lender and customer (points), and some rates offer a rebate to the lender and customer if selected (discounts). Affinity Loan Officers quote interest rates closest to par.

Some customers find it useful to pay points to get a lower interest rate. For example: If a lender offers a 30–year conventional loan at 6% and zero points (par), they might charge 1.75 points for a 5.5% loan. The initial up–front cost of buying the interest rate down may be justified when you evaluate the total savings over the life of the loan.

Rebates are points paid by (rather than to) the lender for high–rate loans. The lender who charges 1.75 points for a 5.50% loan, for example, might rebate 2 points for a 7% loan. The 2 points would be available to cover the borrower's closing costs.

Rebates

Rebates are interest points refunded to the borrower for taking a higher than par interest rate. These interest points can be used to cover closing costs and fees. Also known as premium pricing.

Fees

The origination fee is the amount collected by the lender to cover the costs of making a loan. This fee is used to pay the support staff involved in the loan process. It is typically equal to a percentage of the principal amount borrowed.

The industry standard origination fee is 1%. Generally, ½% goes to cover the cost of originating a loan, and ½% goes to the loan officer in the form of a commission.

In addition to the origination fee, lenders may also charge fees for processing, document preparation, funding, or other miscellaneous expenses. It is important to compare fees listed on the good faith estimates you request.

Junk fees are non–regulated fees charged by a lender as part of your closing costs in excess of what it costs a lender to originate a loan. Junk fees collected by loan officers generally enhance their commission.

How can the Affinity Lending Center afford to offer closing cost discounts?

The Hometown Home Loan Program offers Affinity customers ½% off of the loan origination fee because their loan officers are non–commissioned. Affinity Loan Officers quote interest rates closest to par. They do not charge Affinity customers points for higher interest rates to offer reduced closing costs.

Tip: When reviewing your good faith estimate, be aware of the interest rate as well as the fees a lender is charging. When choosing a lender, it is always a good idea to get good faith estimates on the same day so you can compare both fees and rates.

In sum, the price of a mortgage has three components: interest rate, total upfront charges expressed as a percent of the loan, and total upfront charges expressed in dollars.