Some of the closing costs are tax deductible. The loan origination fee (points), prepaid interest, and prepaid taxes are normally tax deductible. You should always check with your tax professional.
A Loan Officer or Loan Agent is normally the lender’s liaison with the borrower. The Loan Officer explains loan programs to the borrower and helps the borrower fill out forms and gather required documentation. Normally, the Loan Officer earns a commission on each loan completed, which is part of the loan origination fee (points) paid for the loan.
Federal law requires lenders to provide specific disclosures to borrowers within three days of receiving a loan application. These disclosures are referred to as Truth In Lending or Regulation Z disclosures, and they are intended to provide the borrowers with a “good faith” estimate of the fees, APR, and program specifics of the credit they are applying for.
A Rate Lock is official only when it has been acknowledged by letter or email from an official. When you wish to lock in your rate and point combination, you must ensure you get written confirmation of your lock. The borrower can lock after rates are posted for the day until 4:00 pm.
A Rate Lock is a lender’s commitment to “lock in” an interest rate and origination fee (points) for a period of time. The advantage to “locking in” the terms of a loan are that if the rates go up, the lender is required to honor the rates at the time of the lock. The loan must be completed within the time of the lock; otherwise the terms of the loan will be either those in effect at the time of closing or those in effect at the time of the lock, whichever are worse.
Generally, Mortgage insurance is required whenever the down payment is less than 20% of the purchase price.
Private Mortgage Insurance (PMI) protects the lender against losses in case of default by the borrower (foreclosure). Mortgage insurance allows lenders to grant loans that would otherwise be considered too risky.
There are two major types of mortgage: Fixed Rate and Adjustable (or Variable) Rate
Other types of mortgages:
The Annual Percentage Rate (APR) is different from the interest rate for the loan. In addition to the interest, the APR includes other finance charges such as the loan origination fee (points), processing charges, and application fees. Specifically excluded from the APR are title, escrow, credit report and appraisal fees.
The terms “Origination Points” and “Discount Points” are generally used interchangeably, but Origination Points are associated with conventional loans and Discount Points are associated with government loans such as FHA or VA. A point is one percent of the loan amount. Lenders charge points for lower interest loans, and the borrowers should evaluate their situations in deciding the best combination of interest rates and points for them. For example, a lender might charge 1.875 points for a 6.5% interest-rate, 30-year fixed-rate loan and no points for a 6.87% interest-rate, 30-year fixed-rate loan. For a loan amount of $200,000, if the borrower intends to stay in the home for the life of the loan, the lower interest loan would save $17,899.77 in interest over the life of the loan while costing the borrower $3,750 in points. If, on the other hand, the borrower intended to give up the loan (due to selling the property or refinancing the loan) after 3 years, the interest savings would only be $2,258.85, making the no-points, higher interest loan more cost effective.
As you would expect, everyone involved in a loan makes money by charging interest or fees. There are generally three levels between the borrower and the actual money borrowed: the retail lender, the wholesale lender, and the actual source of the funds. The source of the funds for the loan charges interest and points for the money borrowed, and the wholesale and retail lenders charge points and fees for their services. The sum of the charges result in the interest, points and fees paid by the borrower over the life of the loan.