An origination fee, sometimes known as origination points, is a fee charged by a lender or a middleman to set up a loan for you. Understanding this concept will help you as you search for homes in Longmont Colorado and attempt to make a purchase. It is intended to cover loan processing and other costs. The quantum and the mode of charging depend on the nature of the loan but in the case of mortgages, the fee is generally around one percent of the loan amount. Many Americans shudder at the thought of refinancing their mortgage because they simply can’t understand how origination fees and points work. In fact, the HUD Secretary is on record as stating that Americans will overpay more than $16 billion on their mortgage refinancing each year.
The origination fee is charged by the mortgage broker if you happen to be using one. Mortgage brokers are in business to earn as much of a commission as they can get out of you and it is not unknown for them to try and charge origination fees of as much as five percent. If you feel that you are being overcharged, shop around to find a broker will charge the normal amount of one percent. You should remember that everyone involved in the mortgage process is out to earn as much money as they can and there are some pretty creative nomenclature used to justify the fees that they are trying to charge.
Another variation of these fees is the so-called discount points. This is a kind of interest that you pay upfront in return for a reduction in their mortgage rate. A discount point is one percent of your loan amount and is meant to reduce your mortgage rate by one quarter per cent. Some lenders will require you to pay a specified number of points in order to get a specific low interest rate. If you have really high-quality credit, try to negotiate a mortgage without paying discount points.
If your credit is less than exemplary, it is unlikely that you will be able to secure low mortgage rates without paying discount points. However, you can decide whether to refinance your current mortgage by actually calculating the savings on interest and seeing how long it will take you to recoup your upfront costs such as closing costs and discount points. There is a rule of thumb called the two percent rule which says that the interest-rate on your new mortgage should be at least two percent lower than your current mortgage. However since interest rates are at rock bottom right now, take this rule with a pinch of salt and make your decision based on your common sense and judgment.
There is a final piece of skullduggery you should watch out for called a Yield Spread Premium. This is a fee that the lender pays the mortgage broker if he is able to write a mortgage at an interest rate higher than market for a borrower. The broker may insist that this is none of your business because it is between him and the lender but the fact is that the fee is coming out of your pocket.
Finding the right mortgage lender takes some effort. You can get some help from the local real estate agents if you are looking to buy real estate in Evergreen CO or another Colorado city like Fort Collins Colorado.
