Ever wonder why there is such a disparity from lender to lender when it comes to rates and fees? It really comes down to two things, marketing and their compensation. You see, most lenders are compensated by the companies they sell the loans to and therefore the higher the rate, the more compensation they receive. That is why it is in the lender’s best interest (no pun intended) to get you into a higher rate loan. What may only amount to a $20-30 higher monthly payment for you can mean hundreds or even thousands more in compensation to the lender.
This is where the marketing aspect comes in. Some lenders will use this compensation to subsidize the fees they normally charge. That is why you can find lenders with lower rates and higher fees or higher rates and lower fees. One way or another, you end up paying for it. Essentially you’re just financing it into the rate, with less due out of pocket at closing. If you shop long and hard enough, you can find the best of both worlds: a lender with low fees and low rates.
All of this is assuming a loan with no points as points should only be paid to buy the rate down. However, this is usually not a wise investment.
- APR…Annual Percentage Rate or Another Phony Rate?
- Are Points Tax Deductible?
- Bi-Weekly Mortgages, Are They Worth It?
- How Recent Market Changes Can Affect You
- Rates Are Based on Your Credit Score and Equity
Gregg Harris has written 16 articles on LenderCity
