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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 126963  
Subject: Re: Help, rates are confusing me! Date: 4/16/2001 10:30 PM
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Hi Jay,

<<I have plugged the numbers into the mortgage calculators and Bank 1 appears to have the best loan. But I thought the APR was created to make this easy, and it would say that Bank 2 has the best loan (lowest APR right?)>>

Yeah... in theory APR's are SUPPOSED to make it easier... except there's no standardized mandatory method of calculating them, so each competitive bidder may or may not try to 'skew' his APR to be tastier than the next guy... leaving you spinning in the muck!

If you want to go through the Good Faith Estimates you got and hand-calculate your own APRs so they're all apples-to-apples, surf back amongst my posts and I've detailed the steps... it's fairly complicated (but not for someone whose survived basic accounting). Look for a couple posts from me back to back... as I amended one of the steps along the way.

NOW... this is all assuming you got honest bids from all the lenders on the same day. If you got bids from diff. lenders on diff. days, then toss the whole lot out, as the fees and rates will have shifted between the bid times, meaning you can't compare the companies... only the actual loans which are expired anyway since you didn't lock them at that moment.

If you REALLY want the best possible deal on both rates and fees, don't try to figure it out yourself... it's like trying to do your own surgery, except the stuff inside is a lot stinkier!

Start fresh by calling (or emailing as folks do with me) and choosing a Loan Broker you feel you can trust, and has sufficient experience and an administratively strong team. Having a good pro on your side is actually your only real hope of getting a good deal, because the competitive field of bankers and brokers KNOWS the general public is choosing them by shopping numbers, and they have ALL KINDS of tricks to get you committed and deeply involved, then gradually cranking the rates and fees back to full rapeage... and you don't want that!

I know you'd like to hear otherwise, but for the public, shopping and comparing numbers will not keep you safe. The best possible safety you can get is by choosing a pro broker by checking credentials and references (actually calling them and checking them out!)

THAT BEING SAID... on to your thoughts about what's better to do, have lender paid closing costs (those supposedly zero costs loans), pay your own closing costs totally in cash at closing, or some combination in between.

I plan on doing a series of pieces on these boards to explain what you need to know about this... in the meanwhile just understand this basic rule-of-thumb;

Closing costs are an absolute... nobody works for free. If you want the lender to pay them, every cash-dollar the lender puts into the deal instead of you will cost you approximately $10 in additional interest over a 30 year loan. Every cash-dollar that you put in rather than the lender reduces your interest by $10 over 30 years.

If true closing costs are $5,000, and you want a zero fee loan, you'll shoulder about $50,000 in additional interest over your 30 year loan (not necessarily very Foolish.)

On the other hand, if you only intend to stay in your loan (home) for a limited length of time (say 5 years), that 1:10 ratio isn't necessarily so bad (in a 'zero fee' loan,) as you're leveraging the use of real cash on a 30 year term basis when you'll only be paying for the 5 years, or whatever.

More on this soon... meanwhile, I hope this helps keep you from drowning, rather than tossing you a cement lifesaver.

Cheers,
Dave Donhoff
Lic. Mortgage Broker
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