The fees associated with the origination of a new mortgage are comprised of two parts: fees and points.
The loan fees are charges, usually being paid to others, to originate your loan. They include credit investigation, property appraisal, loan processing, underwriting, document preparation, title insurance, escrow, recording of the documents, flood plain certification, wire transfer fee, courier charges, and several miscellaneous fee. These amounts seldom vary more than $200 total from lender to lender.
The second category is "points". Before we continue, allow me to provide a definition. One "point" equals one percent of the loan amount. For a $100,000 loan, one point equals $1,000.
The "points" category consists of three parts. Sometimes they are identified separately, often they are combined.
The loan origination fee is the primary source of revenue for the mortgage broker or banker. It must cover all operating expenses of the business, and hopefully some profit. The amount charged varies with the borrower, depending on the borrower's credit, loan amount and loan type. At Vancouver Mortgage Company, this amount ranges from one to five points. Please call for a specific quotation from a loan officer. This fee varies substantially and usually is the competitive price difference between brokers.
Discount points are paid to the company which provides funding for this loan. This item represents pre-paid interest. It provides a way to adjust for lower than market interest rates or additional risk, such as bad credit or non-owner occupied properties.
The Discount Points may be negative if the interest rate that is being offered is higher than the current market rate. This item goes by many different names, but often is called a rebate, yield premium or servicing premium.
Remember, these three parts are typically combined under the heading of points. By law, a mortgage broker must disclose the loan origination fee separate from the discount points on the Good Faith Estimate. A bank does not have this same disclosure requirement. If you are comparing the cost of various loans from different sources, be sure to total the points. At Vancouver Mortgage, we often provide a zero point loan by covering our loan origination fee with a rebate in discount points.
The law also requires that you must be provided with a Good Faith Estimate of these costs within three days of your loan application. To help you in your selection of a mortgage broker, one of the loan officers at Vancouver Mortgage will gladly send you a printed Good Faith Estimate of our costs for a specific loan. It can be sent via fax or mail.