“The second part of this equation is the cost or credit associated with the interest rate,” said Grote
Borrowers pay an interest rate on the total balance of the home loan (known as the principal), and different interest rates have different “costs” associated with them.
Picture mortgage pricing on a sliding scale. Borrowers pay to obtain the best product (lowest rate) and are reimbursed with a “credit” to obtain less favorable terms (higher rates).
The “credit” can be applied to cover closing costs (as laid out above).
[To better understand mortgage pricing Click here.]
The dollar amount that each borrower must pay for each rate is expressed as a percentage of the total principle of the loan. For example, a 4.5% interest rate on a 30-year fixed loan might cost 1 point (1%) of a $300,000 loan. In this case, the borrower would pay $3,000 for the 4.5% interest rate.
For a 5.0% interest rate, however, a borrower might be given a “credit” for 1% of the loan amount. This $3,000 can be put towards covering the $3,000 accrued in closing costs.
In some situations, borrowers are also able to pay for their closing costs with a “gift” from a family member. Click here for our guide on gift giving.
Each and every situation is unique.
“There is no one size fits all,” said Grote. “We have to custom tailor this process to every client.”
Central Coast Lending’s status as both a broker and a direct lender gives each of our clients the unique ability to find the best possible terms for their loan. Our loan officers thoroughly explain the process and options available.
“When we custom fit a loan, we will help our clients understand the logic that goes into the decisions so that they can participate in the process,” said Grote.
Give us a call at 805.543.LOAN for a thorough and honest evaluation of your finances and find out which mortgage finance is right for you.