Mortgage Rate Shopping 101- How to Compare Rates and Fees

Did you know almost half of all borrowers don’t shop for their mortgage?

Retail Lenders know this and thrive off it. They also know that their Loan Officers are mostly fed off referrals and they mark up the pricing accordingly. If they mark up their back-end profits times 4, but only lose half the people that shop and get a better deal, they still win by a long shot! Since they hide the margin on the back-end, it’s generally tough to see that they are charging more without shopping so they get repeat clients because they are none the wiser. If something is “low cost” and they tell you that’s the best rate you can get. You wouldn’t automatically assume that other lenders have way lower rates for the same cost, or they have potentially large credits back to your closing costs for the same rate. That is because their bad pricing is buried into the rate, and you are none the wiser

I think the big confusion in shopping for your mortgage is wrapping your head around the fact that this is a bit of an apples and oranges scenario. Let’s call the apples the rate, and the oranges the cost. There are two things you must compare- your rate AND the costs associated with it. The cost portion is what is often overlooked and is instant money saved. I am not talking about a 30-year total savings. I am talking about up-front out of pocket closing costs due at the close of your purchase. We all know the rate, and we all compare them, but cost is what we really need to look at! (Real life example down below if you like numbers and listening to me rant.)

Another thing to keep in mind- Do multiple credit pulls from different mortgage lenders hurt your credit? NO– multiple inquiries within 45 days are counted as ONE hit. The system is set up to protect you and allow you to shop mortgage lenders!

If you don’t want to get overwhelmed with the content below, I would love to do the heavy lifting for you. Just shoot me an email at Matt@BendMortgageBrokers.com, or a call at 541-972-8616 and take the 5 minutes to shop with us. But if you want to dive deeper into this keep reading.

So, what fees do you need to look at to find the total cost to compare?

A loan estimate is a disclosure that was rolled out around 2015, that was designed to give the consumer a better way to see the fees associated with their mortgage and what they were for. Here to the left is an example from the CFPB, when you shop I want you to look at ALL of those Section “A.” Fees- regardless of the different names given they are all origination charges. Some lenders get creative with the names to make you think it isn’t all their fees, but these should all be added together for shopping purposes. You will see a lot of “NO LENDER FEES” advertised, then in the fine print that no one reads it says “points are not included in this statement” so keep that in mind and know if it’s not a locked LE it’s likely not true, or a one in a million scenario.

Names some lenders use for their section A fees:

• Admin Fee
• Origination Fee
• Discount Fee
• Underwriting fee
• Point Fee
• Processing Fee

Regardless of what they are called these are all fees structured by the lender to pay some portion of their origination process.

Sections B through H should be close if not identical from lender to lender. Section J “lender credits” also needs to be factored into your shopping.

I have highlighted the sections (A and J) that we need to look at with red rectangles.

To accurately compare lenders, you need to add up all the fees in Section A, Then subtract any lender credit in Section J from that amount. That number is your total cost for the rate quoted. To accurately shop, you should see what another lender quotes you on cost for the same rate and see what the difference is (apples to apples). You should also see what Rate you can get for the same cost (oranges to oranges). This will give you a really good and sometimes eye-opening experience on pricing differences from lender to lender.

BEWARE- If a loan is not locked, lenders technically DO NOT have to disclose the fee for the rate. You will see this a lot on some online lenders. So you need to be clear that you want them to include all fees or lock it to see their actual rate. One of the biggest lenders in the nation is notorious for kicking the can down the road on your lock, so they can avoid showing you the true cost of the rate. They try to string you along until you feel it’s too late to switch lenders before your close, then they lock. If someone in a call center is stringing you along about your lock during a purchase that is a huge red flag, but since their lead generation is so strong they don’t care if you come back to them in the future. Our business is based on repeat clients, and referrals. Because of this giving you the best price we can, and the best experience throughout the transaction are top of our priority list.

On purchases borrowers tend to be concerned with closing costs more than refinances. So I see a lot of lenders saying here is your interest rate, and its low/ no cost. You assume since the rate they are showing you has “no cost”, that is a good deal, because what is less than $0? The retail lender will give you the pitch that “It is the best rate, and it’s a $0 cost!” But this is not the case- Apple to Apple comparison here is that for the Same rate compared to a retail lender that was no cost, I can generally offer a credit to you because our pricing is better. This is where that baked in margin that is hidden from you comes in. They have that padded into their $0 cost rate, and you can see how much better priced we are at the same rate because we have a credit back to you in place of that hidden cost to you!

The Orange to Orange is that for the Same rate COST we can offer a lower interest rate! As a broker we don’t have the overhead that the big companies do, and our wholesale lends fight for our business with their pricing. Those same lenders here will blame it on your profile or the market or something along the lines of “Because of your loan type and credit score you have to pay points” but don’t take that for an answer. We don’t have the margin markup like them, so we can often save you the most in these situations.

A Real World Example

Here is a real-world Example- I had a client call me to shop the lender they were pre-approved with. They were interested in a single wide in Bend and had spoken with a retail lender in Redmond. The retail lender had explained that because of the pricing hits for manufactured homes, and on top of that a single wide, that their pricing was 7.5% (8.379% APR), for about 2 Points. That equated to $12,000 due at closing to get the 7.5% (8.379% APR) rate from them.

Our pricing for the exact same scenario was a full two points better. at our 7.5% rate (8.163% APR) we were under $1,000 in lender fees for this client a savings of about $11,000 (apples to apples). Had the client been paying closing costs out of pocket he would likely kept this rate and saved himself $12,000 of throw-away fees that goes to the retail lenders overhead. But in this case, he had a seller concession for the closing costs, so since I had roughly $12,000 at my disposal to buy our rate down, so for the same fees as the original lender (oranges to oranges) we were able to get the client a 6.625% rate (7.552% APR) instead of the 7.5% (8.379% APR) they had quoted. I wish I could say that this was uncommon and that all lenders were priced close together but unfortunately that is not true. We often save clients 4-5 figures on closing costs.

On the other side of this, you have companies trying to solicit you for refinancing. There only thing they want you to focus on is that lower rate, and lower payment. But it is extremely important to check the fees on those. You will find that it doesn’t pencil out a lot of the time. On refinances lenders can tack the origination fees, discount points, processing fees etc. onto your loan amount. So even though you may have a lower rate and payment, you may have paid ten’s of thousands to get that rate or offer that never pencils out. When I do a refinance, I want the client’s monthly savings to be able to recoup the costs from the refinance within a year or so.

We have access to a bunch of lenders, a bunch of rates sheets, and a bunch of scenarios. This whole process can be daunting and confusing but if you take the ten minutes to chat with me, I can get you an idea of what our pricing is for your scenario.

Even if you have already closed on your purchase I can look at your current financing, see where our pricing was from our archives, and see what you would have saved with us. This will help us get on the same page for your refinancing needs down the road.

Please feel free to reach out to me, and we can chat more on loan comparisons, rate shopping, education, or any of your financing needs.

Matt Boytz
Direct: 541-359-7212
Office: 541-972-8616
NMLS 1294957
NMLS 2552455
Matt@BendMortgageBrokers.com
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