These are the hard costs you incur to obtain a mortgage. Closing costs are separate from pre-paid expenses for taxes, insurance, or interest – together they are combined to determine the funds needed to close (total cash required). Closing Costs are what you should consider, when looking at interest rates, as the property taxes/insurance expenses will be the same, regardless of the rate chosen.
Rule: The higher the rate, the lower your closing costs, due to points charged on lower rates and lender credits available on higher rates, which help cover some or all of your cash to close.
The difference in upfront closing cost vs the interest rate monthly savings, is what you want to consider when choosing a rate. For Example:
(Using a loan size of $350,000)
3.750% is a monthly payment of $1,691 & closing cost of $1,000.00
3.500%, monthly payment of $1,572 & closing cost of $4,000.00
Calculation to determine benefit: the different in upfront expense is $3,000.00 (between $4,000 and $1,000), and the improvement to monthly payment is $119.00 ($1,691 – $1,572). This would take about 25 months to make up this difference, so in two years, you would start saving $119/month by selecting this lower rate, but, you must consider the upfront cost and time it would take to make up the difference to make a sound financial choice.
When looking at cash to close (including your taxes/insurance/interest expenses), you do have some ways in which you can effectively lower the upfront expense. If you are minimally putting 10% down (or have 10% equity in a refinance) in CA or 20% in other states, you can request that impounds not be included on your mortgage, that removes the requirement for upfront reserves to set up the impound account – which can be a lot, depending on the time of year and when those bills are due. This does not mean those bills won’t eventually come due for you, it just means that you won’t have to make the upfront reserve payment at your loan closing.
What does Empire of America charge per transaction? Well, we have a guaranteed $1,949.00 lender fee, you’ll see it on our pricing engine on every rate, this encompasses all our services and covers transactional expenses (credit report, etc.) we incur to complete a mortgage for you (our company does not charge any other fees). We are also in control of your appraisal charge, which ranges from $400 to $850, depending on the value of your home, how remote it is and the state your property is in. The title & escrow fees on your transaction will be determined by you! You can shop these fees or go with our selected vendor. Usually, our agent is more affordable and effective that most others. Being in the industry for over 40 years, we have done the research to find the most proficient and well-priced escrow agents for each state.
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