Q: I would like to know what company is best to refinance our home loan with in Georgia. Also I’ve been told not to pay points or an origination fee but I can’t find a company that complies with both without a huge closing cost. Help!
A: Unfortunately, the Real Estate Matters column policy is to not make individual recommendations when it comes to finding lenders, doctors, lawyers, or title companies. But I do have a few suggestions on how you can find a great mortgage lender in your own neighborhood.
First, there are plenty of legitimate companies that do not charge closing costs or points, however, you will pay a higher interest rate to compensate for not paying these costs. That’s because there is an inverse trade-off between points paid and the interest rate. The higher the rate, the lower the fees, or the higher the fees the lower the rate.
How much will you pay to trade off some closing costs for the interest rate? Sometimes it’s a quarter point or sometimes an eighth of a point or a half point. It depends on your credit score and other factors.
Next, legitimate lenders typically charge about 1 percent of the loan amount in fees and costs. This is an average cost and it’s a fair one to pay. So if your loan is for $150,000, you can expect to pay $1,500 in some sort of fee (or combination of fees) to the lender (or, expect the interest rate to rise). You should be able to add up all the fees and costs (like origination fee, document preparation fee, etc.) and the total should be about 1 percent of the loan amount,
But the larger the loan, the lower the percentage fee. If your loan is for $500,000, the loan fees may still be around $1,500 or less unless the lender is charging you an origination fee or discount point.
As for other closing costs, they can vary. And you have some control over some of them. For example, you’ll pay prepaid interest on the loan as part of your closing costs. If you close at the beginning of the month, the prepaid interest will be higher than if you close on the last day of the month. Many people don’t understand this, but it’s a fee separate from whatever you would pay the lender.
If your prior lender held money to pay your real estate taxes and insurance, your new lender may require you to do it again. So at your refinancing, you will need to come up with this money to pay the lender. At a later date, you should get back all of the money that is held by your old lender for taxes and insurance.
How do you find a great lender? I’d start at BankRate.com, and then call a few national lenders for comparison purposes. (Check out JD Power.com for the top lenders in the U.S. as well as how they rank on customer service.). You might also want to check out a well-regarded, a good-size mortgage brokerage firm. If you belong to a credit union, check out their rates: they typically have very good deals when it comes to mortgage, home equity and auto loans.
When you narrow your search to two or three lenders, you’ll need to do your background checks on them. Look them up at the Better Business Bureau’s website (www.bbbonline.org) to make sure they haven’t had any problems. You can check their status at the Governor’s office of Banking and Finance. (www.dbf.georgia.gov).
Once you narrow in on your lenders, you should also pay a visit to their offices to make sure they look as good in person as they sound on the phone.
I know this sounds like a lot of work, but you want to make sure you find a great lender who will deal with you fairly.
June 3, 2006.