30 Yr Fixed 4.875% Take it or Leave it?

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reallyconfused
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30 Yr Fixed 4.875% Take it or Leave it?

Post by reallyconfused » Mon Dec 28, 2009 5:36 pm

My sister's offer on a house was just accepted and she asked me if these are good terms and I AM seeking the expert advice on this board.

House 400000
Loan 320000
Down Payment 80000

30 yr fixed at 4.875%

Do these costs make sense? Some seem too high to me.

Closing costs at $3435
ADMIN fee $995
Processing fee $500
Underwriting fee $500
Escrow fee $350
Notary fee $200

On behalf of my sister many many thanks in advance.
Last edited by reallyconfused on Tue Dec 29, 2009 4:27 am, edited 1 time in total.

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Re: 30 Yr Fixed 4.875% Take it or Leave it?

Post by Gill » Mon Dec 28, 2009 5:44 pm

reallyconfused wrote:...I am not seeking the expert advice on this board.
I guess that ends the discussion... :)
Bruce

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Re: 30 Yr Fixed 4.875% Take it or Leave it?

Post by Mel Lindauer » Mon Dec 28, 2009 5:51 pm

reallyconfused wrote:My sister's offer on a house was just accepted and she asked me if these are good terms and I am not seeking the expert advice on this board.

House 400000
Loan 320000
Down Payment 80000

30 yr fixed at 4.875%

Do these costs make sense? Some seem too high to me.

Closing costs at $3435
ADMIN fee $995
Processing fee $500
Underwriting fee $500
Escrow fee $350
Notary fee $200

On behalf of my sister many many thanks in advance.
Boy, they do seem really high to me, too. Just how many fees can they tack on? $350 to hold her money in an escrow account for perhaps 90 days? What a rip off. And all the other fees (except the interest rate) seem way too high for my taste, too. I'd walk.
Best Regards - Mel | | Semper Fi

sscritic
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Re: 30 Yr Fixed 4.875% Take it or Leave it?

Post by sscritic » Mon Dec 28, 2009 6:10 pm

Mel Lindauer wrote: Boy, they do seem really high to me, too. Just how many fees can they tack on? $350 to hold her money in an escrow account for perhaps 90 days? What a rip off. And all the other fees (except the interest rate) seem way too high for my taste, too. I'd walk.
Where does she live? In California, the escrow company prepares or assembles all the paperwork, including the title insurance. Or is your escrow fee a fee charged by the bank but not by the escrow company (if your state uses such a thing)? Whether these fees are high depend on the costs in her state and in her local area. Since current interest rates are over 5%, does the "closing cost" include a 1% ($3200) buy down?

[Are "closing costs" costs that only occur at the closing and if she backs out before the closing these costs are not incurred? Are the other costs costs that are non-refundable and become due upon application for the loan?]

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Post by Kevinaom » Mon Dec 28, 2009 7:17 pm

This is why you should be comparing APR and not just the rate. By law, they are required to give you the APR which accounts for all fees etc. When you get all the APRs of the different offers, take the lowest APR as long as you can handle the outflow of cash. If you cannot, take the lowest APR you can get with the amount of cash outlay you can stand.

4.875% sounds great but if the APR is actually 5% and you can get a a 4.9% APR loan with fees then take the 4.9%.

APR is the key.

the intruder
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Re: 30 Yr Fixed 4.875% Take it or Leave it?

Post by the intruder » Mon Dec 28, 2009 8:05 pm

reallyconfused wrote:My sister's offer on a house was just accepted and she asked me if these are good terms and I am not seeking the expert advice on this board.

House 400000
Loan 320000
Down Payment 80000

30 yr fixed at 4.875%

Do these costs make sense? Some seem too high to me.

Closing costs at $3435
ADMIN fee $995
Processing fee $500
Underwriting fee $500
Escrow fee $350
Notary fee $200

On behalf of my sister many many thanks in advance.
Why are you asking this question if the seller has accepted your sisters offer on the house? If she backs out now she will probably be in default on the purchase agreement for the home which could cause her to have financial problems e.g., pay a penalty to the seller or lose the home and her down payment.

4.875% is a very good rate for 30yr prime mge (no PMI). Current rates for 30 yr fixed according to the WSJ are 5.36% up from 5.24 last week. Even if she can back out without a penalty she will probabily be stuck with a higher rate even assuming she does not lose the house. Also her closing costs depend on various factors such the amount of escrow (banks usually require 2 months deposit of property taxes and insurance at closing) and prepayment of interest on first month's mortgage, which are not part of the costs of purchasing the home such as the application fee, appraisal fee, title ins, recording fees, etc. A 320k mortgage at 4.875% for 30 yrs is about $2510 per month, most of which (90% perhaps) will be interest.

Your sister should look at her RESPA good faith estimate of closing costs to see what she is paying for at closing. It may be that there are high payments due at closing because of the size of the mortgage and the property taxes to be held in escrow which is why I only use a bank that doesnt hold my taxes and insurance in escrow.

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Re: 30 Yr Fixed 4.875% Take it or Leave it?

Post by reallyconfused » Tue Dec 29, 2009 4:08 am

Mel Lindauer wrote:
Boy, they do seem really high to me, too. Just how many fees can they tack on? $350 to hold her money in an escrow account for perhaps 90 days? What a rip off. And all the other fees (except the interest rate) seem way too high for my taste, too. I'd walk.
Thanks Mel I really value your opinion.

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Re: 30 Yr Fixed 4.875% Take it or Leave it?

Post by reallyconfused » Tue Dec 29, 2009 4:12 am

sscritic wrote: Where does she live? In California, the escrow company prepares or assembles all the paperwork, including the title insurance. Or is your escrow fee a fee charged by the bank but not by the escrow company (if your state uses such a thing)? Whether these fees are high depend on the costs in her state and in her local area. Since current interest rates are over 5%, does the "closing cost" include a 1% ($3200) buy down?

[Are "closing costs" costs that only occur at the closing and if she backs out before the closing these costs are not incurred? Are the other costs costs that are non-refundable and become due upon application for the loan?]
She lives in California. I had a similar understanding of how escrows work. It definitely looks like they are charging her a point. I will try to attach her good faith estimate and I will ask her to follow up with the company on whether the closing costs are refundable. Thanks for you post. Got me thinking.

reallyconfused
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Post by reallyconfused » Tue Dec 29, 2009 4:13 am

Kevinaom wrote:This is why you should be comparing APR and not just the rate. By law, they are required to give you the APR which accounts for all fees etc. When you get all the APRs of the different offers, take the lowest APR as long as you can handle the outflow of cash. If you cannot, take the lowest APR you can get with the amount of cash outlay you can stand.

4.875% sounds great but if the APR is actually 5% and you can get a a 4.9% APR loan with fees then take the 4.9%.

APR is the key.
This is an awesome point. Thanks. Didn't know that. Will ask for APR and post back.

reallyconfused
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Re: 30 Yr Fixed 4.875% Take it or Leave it?

Post by reallyconfused » Tue Dec 29, 2009 4:19 am

the intruder wrote:Why are you asking this question if the seller has accepted your sisters offer on the house? If she backs out now she will probably be in default on the purchase agreement for the home which could cause her to have financial problems e.g., pay a penalty to the seller or lose the home and her down payment.

4.875% is a very good rate for 30yr prime mge (no PMI). Current rates for 30 yr fixed according to the WSJ are 5.36% up from 5.24 last week. Even if she can back out without a penalty she will probabily be stuck with a higher rate even assuming she does not lose the house. Also her closing costs depend on various factors such the amount of escrow (banks usually require 2 months deposit of property taxes and insurance at closing) and prepayment of interest on first month's mortgage, which are not part of the costs of purchasing the home such as the application fee, appraisal fee, title ins, recording fees, etc. A 320k mortgage at 4.875% for 30 yrs is about $2510 per month, most of which (90% perhaps) will be interest.

Your sister should look at her RESPA good faith estimate of closing costs to see what she is paying for at closing. It may be that there are high payments due at closing because of the size of the mortgage and the property taxes to be held in escrow which is why I only use a bank that doesnt hold my taxes and insurance in escrow.
No one is taking about her backing out of the house. The short sale was accepted and now she is determining the best way to finance. She's financially conservative and she has near perfect credit (>800) so she can be picky. Where did $2510/month come from? Monthly payments are ~$1700 according to her good faith estimate.
Last edited by reallyconfused on Tue Dec 29, 2009 4:26 am, edited 1 time in total.

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Post by reallyconfused » Tue Dec 29, 2009 4:22 am

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Gill
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Post by Gill » Tue Dec 29, 2009 6:44 am

For all intents and purposes they're charging her a point. It's just disguised as closing costs. I've never seen them quite so predatory, however.
Bruce

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Post by RobG » Tue Dec 29, 2009 6:58 am

I believe the only fees with any wiggle room from the lender are the "section 800" fees which run about $1600 or half a point - which isn't horrible (or predatory). You can ask for a quote with those fees at zero and see what you get, or you can show the GFE to other lenders and see if they can beat it.

The other fees are outside of the lender's control.

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Post by sscritic » Tue Dec 29, 2009 9:04 am

The "closing costs" are zero. The line closing cost is the sum of all the previous lines; it is not separate from all the other fees listed. The OP listed the closing costs as if it were a separate item.

500 + 500 + 995 + 350 + 200 + 800 + 90 = $3435

[I don't quite understand the line for appraisal - I assume the charge was $350 but that she already paid it - it is not included as a negative in the closing costs, but as a zero.]

The total cost is roughly 1% on a $320,000 loan on a $400,00 property.
Typically, closing costs run between 3% and 5% of your loan amount, so if you're borrowing $100,000 you can expect closing costs of $3,000 to $5,000. If you're borrowing $200,000 you can expect closing costs of $6,000 to $10,000.
The above is for someone paying an origination fee and points. Your sister does not have those expenses. I don't know if 1% is too much under the circumstances.

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Post by sscritic » Tue Dec 29, 2009 9:18 am

For comparison:

My son bought a house two weeks ago for $475,000 with a $380,000 loan.

Closing costs were $13,037. But then he went with a buydown, because the seller was giving a $13,000 concession credit toward closing. The buydown was $7670 and the origination fee was $950, so the total closing cost less the origination fee and buydown was $4417.

Your sister's numbers: $400k 320k $3435
My son's number: $475k $380k $4417

Both are 20% down. Closing as a percent of purchase price is 0.86% for your sister and 0.93% for my son.

[Added Edit: If you add back in her pre-paid appraisal fee for an apples-to-apples comparison - his appraisal was included - her cost is $3785 or 0.95% of her purchase price.]

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Post by KyleAAA » Tue Dec 29, 2009 10:09 am

Looks like they're lowering the rate below market and making up for it in fees. Admin, Processing, and Notary fees at the very least are junk fees. You can take a document to a local church and get it notarized for free, usually. There's no sense paying $200 for somebody to watch somebody sign a sheet of paper. I don't know what the escrow fee is, but it is suspect as well.

It's a dishonest ploy to make the deal seem better than it really is, but the overall APR is still pretty decent. I'd take it unless I was sure I could arrange other financing quickly. It's still only a bit above 1% of the value of the loan, which is the "benchmark."

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Post by RobG » Tue Dec 29, 2009 11:37 am

KyleAAA wrote:Looks like they're lowering the rate below market and making up for it in fees. Admin, Processing, and Notary fees at the very least are junk fees. You can take a document to a local church and get it notarized for free, usually. There's no sense paying $200 for somebody to watch somebody sign a sheet of paper. I don't know what the escrow fee is, but it is suspect as well.

It's a dishonest ploy to make the deal seem better than it really is, but the overall APR is still pretty decent. I'd take it unless I was sure I could arrange other financing quickly. It's still only a bit above 1% of the value of the loan, which is the "benchmark."
Again, only the section 800 fees are in control of the lender. The notary fee is determined by the notary - you might be able to knock that down a bit with a different title company.

Here is a "closing costs 101" link I found:
http://www.homeclosing101.org/costs.cfm

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Post by hidesert » Tue Dec 29, 2009 11:44 am

I've only been involved in a couple of real estate purchases but both times I was disgusted by the whole process. There is blatant cronyism between the agents, title companies, banks, and appraisers that serves the interests of the real estate industry, definitely not the buyers or sellers.

I believe the purchaser has the choice of title companies. You don't have to go with the one selected by the agent or financing companies. The title company is where most of these fees originate. I suggest shopping around the various title companies and bargaining. I would think in this market you would have some clout.

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Post by superdrew99 » Tue Dec 29, 2009 11:46 am

You may also want to try Entitle Direct for cheaper title insurance. Assuming this is MO, they have title insurance for $682.

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Post by indexfundfan » Tue Dec 29, 2009 11:57 am

Is the loan locked? 30-yr fixed at 4.875% is a very good rate for 12/28, despite the fact that some fees could have been lower.

Has she looked at some direct lenders like credit unions? I recently refinanced with Star One CU and the closing costs were about $2000.
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Post by Splash » Tue Dec 29, 2009 8:13 pm

She should look at Pentagon Federal Credit Union.

I think those costs are excessive, and as some smart person figured out, it all adds up to one point.

It might not be too late to sign up with them. I did not find them difficult or predatory to deal with.

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Post by Kevinaom » Tue Dec 29, 2009 8:28 pm

Another point. You should ALWAYS HAVE AN ATTORNEY representing you. That is the best money you can spend on a real estate transaction. The attorney will very quickly be able to tell you if this looks like a standard deal for your area. While they will not negotiate for you, one quick look at the loan doc and they will be able to tell you whether it looks reasonable. Why? Because they see hundreds of them. You may only see two or three in your lifetime.

Now, I will get the many replies to this saying, "I bought real estate and I never had an attorney...." but that is the equivalent to the person who says their investment strategy is gambling because "they know a guy who hit the jackpot".

You are about to spend the biggest amount of money you will ever in your life (probably) and you are at a SIGNIFICANT DISADVANTAGE. Virtually everyone at the closing table is very experienced, knowledgeable and WORKING FOR SOMEONE OTHER THAN YOU.

My strategy when I buy real estate is simple: I go out and pick out a home and a lender. Then I tell the lender and the real estate agent the name and phone number of my attorney. Anything and everything they want signed must go to the attorney first. He/she will tell me whether to sign or not. I stop talking to everyone but him/her.

Just the act of doing that will ensure they will not screw with you. Spend more time selecting the right attorney and everything else will work out.

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Post by malloc » Wed Dec 30, 2009 12:08 am

What state are you in?

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Post by the intruder » Wed Dec 30, 2009 2:22 pm

Kevinaom wrote:Another point. You should ALWAYS HAVE AN ATTORNEY representing you. That is the best money you can spend on a real estate transaction. The attorney will very quickly be able to tell you if this looks like a standard deal for your area. While they will not negotiate for you, one quick look at the loan doc and they will be able to tell you whether it looks reasonable. Why? Because they see hundreds of them. You may only see two or three in your lifetime.

Now, I will get the many replies to this saying, "I bought real estate and I never had an attorney...." but that is the equivalent to the person who says their investment strategy is gambling because "they know a guy who hit the jackpot".

You are about to spend the biggest amount of money you will ever in your life (probably) and you are at a SIGNIFICANT DISADVANTAGE. Virtually everyone at the closing table is very experienced, knowledgeable and WORKING FOR SOMEONE OTHER THAN YOU.

My strategy when I buy real estate is simple: I go out and pick out a home and a lender. Then I tell the lender and the real estate agent the name and phone number of my attorney. Anything and everything they want signed must go to the attorney first. He/she will tell me whether to sign or not. I stop talking to everyone but him/her.

Just the act of doing that will ensure they will not screw with you. Spend more time selecting the right attorney and everything else will work out.
Its a waste of money to hire an an attorney if you are doing a refi.

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Re: 30 Yr Fixed 4.875% Take it or Leave it?

Post by the intruder » Wed Dec 30, 2009 2:39 pm

reallyconfused wrote:
the intruder wrote:Why are you asking this question if the seller has accepted your sisters offer on the house? If she backs out now she will probably be in default on the purchase agreement for the home which could cause her to have financial problems e.g., pay a penalty to the seller or lose the home and her down payment.

4.875% is a very good rate for 30yr prime mge (no PMI). Current rates for 30 yr fixed according to the WSJ are 5.36% up from 5.24 last week. Even if she can back out without a penalty she will probabily be stuck with a higher rate even assuming she does not lose the house. Also her closing costs depend on various factors such the amount of escrow (banks usually require 2 months deposit of property taxes and insurance at closing) and prepayment of interest on first month's mortgage, which are not part of the costs of purchasing the home such as the application fee, appraisal fee, title ins, recording fees, etc. A 320k mortgage at 4.875% for 30 yrs is about $2510 per month, most of which (90% perhaps) will be interest.
No one is taking about her backing out of the house. The short sale was accepted and now she is determining the best way to finance. She's financially conservative and she has near perfect credit (>800) so she can be picky. Where did $2510/month come from? Monthly payments are ~$1700 according to her good faith estimate.
The 2510 payment was based on a 15 yr mortgage which I was using for another illustration. 1693 is the correct amount.

I dont see how finding another lender will be better- As of yesterday 30 yr mge rates are 50 bp above her 4.875% (WSJ) which is $101 more per month. Also some of the costs will have to paid again to the new lender.
Last edited by the intruder on Wed Dec 30, 2009 7:18 pm, edited 1 time in total.

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Post by bilperk » Wed Dec 30, 2009 3:16 pm

I did a 150K refi on my home this spring at 4.75% 30 year fixed.

My total closing costs were $3903, but it included a $187 Loan origination fee, and a $750 loan discount. Yours has neither of these. What you do have is the ADMIN fee of $900.

My wife works for a bank and has also worked in real estate, both for the bank and privately. She said it normally works just like buying a car; you want more for your trade-in? Fine, you pay more for the new car.

The 30 year rate your sister is getting is very good in todays market. Some of the fees seem high; processing fee and underwriting fee for example, and the ADMIN fee is just a loan origination and discount fee by another name.

Frankly, this looks like a pretty good loan to me.

If you find that 4.8% loans are a dime a dozen in your area than she should try to get them to cut some of the fees, but my guess is this is just a way of getting their money up front, before they sell her loan to fannie or freddie
Bill

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Post by the intruder » Wed Dec 30, 2009 3:45 pm

bilperk wrote:I did a 150K refi on my home this spring at 4.75% 30 year fixed.

My total closing costs were $3903, but it included a $187 Loan origination fee, and a $750 loan discount. Yours has neither of these. What you do have is the ADMIN fee of $900.

My wife works for a bank and has also worked in real estate, both for the bank and privately. She said it normally works just like buying a car; you want more for your trade-in? Fine, you pay more for the new car.

The 30 year rate your sister is getting is very good in todays market. Some of the fees seem high; processing fee and underwriting fee for example, and the ADMIN fee is just a loan origination and discount fee by another name.

Frankly, this looks like a pretty good loan to me.

If you find that 4.8% loans are a dime a dozen in your area than she should try to get them to cut some of the fees, but my guess is this is just a way of getting their money up front, before they sell her loan to fannie or freddie
I agree. Banks have to make something on their new loans before they are sold to F & F. If they dont charge points then they will charge a discount fee or an admin fee. There is no free lunch on a mortgage. The banks will make a profit regardless of what fees are charged. The only question is whether you get the best rate.

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Post by RobG » Wed Dec 30, 2009 4:08 pm

the intruder wrote:
bilperk wrote:I did a 150K refi on my home this spring at 4.75% 30 year fixed.

My total closing costs were $3903, but it included a $187 Loan origination fee, and a $750 loan discount. Yours has neither of these. What you do have is the ADMIN fee of $900.

My wife works for a bank and has also worked in real estate, both for the bank and privately. She said it normally works just like buying a car; you want more for your trade-in? Fine, you pay more for the new car.

The 30 year rate your sister is getting is very good in todays market. Some of the fees seem high; processing fee and underwriting fee for example, and the ADMIN fee is just a loan origination and discount fee by another name.

Frankly, this looks like a pretty good loan to me.

If you find that 4.8% loans are a dime a dozen in your area than she should try to get them to cut some of the fees, but my guess is this is just a way of getting their money up front, before they sell her loan to fannie or freddie
I agree. Banks have to make something on their new loans before they are sold to F & F. If they dont charge points then they will charge a discount fee or an admin fee. There is no free lunch on a mortgage. The banks will make a profit regardless of what fees are charged. The only question is whether you get the best rate.
I'd like to add to these comments. The section 800 are the ones that the lender controls. As mentioned earlier, high fees mean they can give you a lower rate. You can get a loan with $0 section 800 fees (or even money back), but the rate will be higher. The fees are essentially the same as "points" you pay to reduce the rate. Generally the section 800 fees do not compensate for the lower rate for a number of years (I have heard 7 years, but I'm sure it depends).

A good way to compare loans is to get a quote with these fees reduced to zero (or 1% of the loan, etc). That way you are comparing apples to apples. Another way is to give the GFE to another lender and ask if they can meet the rate with lower fees.

I also want to restate don't look at the "total" closing costs to compare loans. Those costs include interest, taxes, etc. that are out of control of the lender. Just look at the section 800 fees.

rg

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Post by Kevinaom » Wed Dec 30, 2009 9:06 pm

the intruder wrote: Its a waste of money to hire an an attorney if you are doing a refi.
Maybe or maybe not.. no need to argue here since the OP was discussing BUYING A HOUSE and not re-fi'ing. I would love to discuss the re-fi stuff with you if you like but that was not the point of this thread.

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Post by Kevinaom » Wed Dec 30, 2009 9:09 pm

I say again, the simple thing is to compare APRs and not just interest rates. They are required by law to provide that to you. Read: http://www.allbusiness.com/personal-fin ... 382-1.html and if you want to calculate it yourself read: http://www.mortgageloan.com/calculator/ ... calculator

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Post by Kevinaom » Wed Dec 30, 2009 9:14 pm

Ok, I used the site: http://www.mortgageloan.com/calculator/ ... calculator to calculate your APR and it comes to 4.968% (I did not count the prepaid interest as a "fee" since it is part of the loan).

This is what you should be comparing other APRs against. IMHO, if you can handle the cashflow getting a 30 year loan at 4.968% interest is an incredible deal. Further, if you are in the 28% tax bracket, you are essentially getting the loan for 3.58% interest. That is unbelievable in historical terms.

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Post by Kevinaom » Fri Jan 01, 2010 11:57 am

bilperk wrote:I did a 150K refi on my home this spring at 4.75% 30 year fixed.

My total closing costs were $3903, but it included a $187 Loan origination fee, and a $750 loan discount. Yours has neither of these. What you do have is the ADMIN fee of $900.

My wife works for a bank and has also worked in real estate, both for the bank and privately. She said it normally works just like buying a car; you want more for your trade-in? Fine, you pay more for the new car.

The 30 year rate your sister is getting is very good in todays market. Some of the fees seem high; processing fee and underwriting fee for example, and the ADMIN fee is just a loan origination and discount fee by another name.

Frankly, this looks like a pretty good loan to me.

If you find that 4.8% loans are a dime a dozen in your area than she should try to get them to cut some of the fees, but my guess is this is just a way of getting their money up front, before they sell her loan to fannie or freddie
Quick calculation on your APR and you got a 4.974% APR interest rate (which again, is all that matters as your wife points out). I calculated the OP APR at 4.968% so all in all, you both got about the same deal...

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