Choosing a mortgage broker, or knowing which quote is best for you, is not always a straightforward decision. The government requires certain disclosures to be made, but even these can be confusing. Mark Wells of Preferred Financial Services answers some often-asked questions regarding rate and closing-cost quotes.
Not entirely. Rates and closing costs go hand in hand, so one lender may be quoting a higher rate, but may have lower closing costs, and vice versa.
APR (Annual Percentage Rate) is the rate which reflects the impact of the closing costs when spread out over time. It is supposed to allow you to compare different rate quotes and determine by the APR which one actually gives you the best rate over time. However, due to unequal disclosure laws, even this is not always accurate.
Banks and direct lenders are able to quote you a rate without disclosing their secondary-market premiums (the additional money they make when they book your loan and sell it to Fannie Mae, Freddie Mac, or FHA). However, if you are using a mortgage broker, they must disclose that premium to you, and it has to be put into the APR calculation on the Truth in Lending form. This creates an artificially high APR for a broker, compared to a direct lender.
First, decide which type of loan is best for you: a standard-closing-cost, no-origination-fee, or no-closing-cost structure. Then, to get a true “apples-to-apples” comparison, have each lender or broker provide you with a quote for that structure that includes an LE and a detailed fee sheet. The rate being quoted should be reflected on these documents, and the detailed fee sheet will break down the closing costs into individual charges so you can compare any differences. Make certain that all quotes use the same figures for your property taxes and your insurance premium, or your escrow deposits will differ and make one quote look better or worse. (If you are refinancing, the lender needs to know the renewal date of your insurance policy to properly quote the insurance premium.) Also, have them provide your interim-interest charge as a per diem amount; this will also keep all quotes on an equal basis. If you compare quotes on this basis, it should be obvious which lender is providing the best rate and terms.
Mark welcomes questions or comments and can be reached at (864) 235-9596, or by e-mail at Mark@TheGreatestRates.com.
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