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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 127236  
Subject: Re: Definition Please? Date: 3/20/2001 4:33 PM
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Hi Jemedwards...

GREAT QUESTION! A pet peave of mine I deal with everyday! Let me lay out some explanations;

1) On every conforming and jumbo loan, and most other non-conforming types as well, you have a RANGE of interest rates available every day. For example, today, March 20, 2001, you could get a 30 year conforming fixed mortgage quoted accurately from anywhere from 6 1/4% to 7 1/2% interest. That's a HUGE RANGE!

2) There is a FEE associated with each seperate interest rate, and these change every day, sometimes as often as 3 times a day. You never see these fees... they are only for the eyes of the bankers and mortgage brokers.

3) the "PAR" rate is the one at which there are no "Discount Points" to buy-down to this rate, and there are no "Rebate Points" paid into the deal by the lender in exchange for having you take the higher rate.

4) There is no such thing as a free loan (or lunch, or anything else... dot com content inclusive!) No matter who the lender is, the appraiser insists on being paid, as do the title companies, escrow, processors, etc.

5) A DISCOUNT POINT (or fee) is how much you would have to pay to have your interest rate get locked in lower.

6) Closing Costs are often quotes in points... but are different from DISCOUNT POINTS... as they have no bearing on your interest rate.

7) Many (most) closing costs are either flat rate fees, or start at a minimum amount and increase above a certain loan amount... so they are not figures as points (percentages of a loan) at all.

8) Discount Points (if applicable), and closing costs in points or flat fees all add up to be costs that have to get folded into your deal somewhere. Let there be no mistake... once again... there is no free deal. *ALL* the costs will be sifted into the loan somewhere.

9) "No Fee" loans never existed! They are advertised as such because that's what the 'something for nothing' public wants to hear and most quickly responds to. In the "No Fee" loans the lender pays the closing costs (a few thousand in cash) in return for the loan closing at otherwise slightly higher interest rates (costing additional tens, twenties, or even thirties of thousands in interest over the loan's lifetime.)

10) CASH IS KING! The more you are able or willing to put into the deal, in Discount and/or Closing Cost Points/Fees, the less interest charges you will incur over the life of the loan. Obviously you want to make sure there is no improper fluff in the flat closing fees... but attempts to have NO FEES simply screws the borrower in the back end (I'm referring to the "long run" back end!)

I sincerely hope this is helpful. If you, or anyone else thinks so, please click the "recommend" button on it and send links to everyone you know who is currently or may ever think of financing.

The reason it P*$$%$ me off so much is that, rather than being able to deal with loan shoppers in a straightforward fashion, I am forced to deal with the spins they are going to get from loan companies that will quote ANYTHING to get the borrowers to begin the process at that company. The loan companies know that once a borrower starts the paperwork, they mostly tend to stop shopping AND PAYING ATTENTION TO THE DETAILS!

Whew... guess I'm getting a bit carried away here. Time for a vacation.

Oops... Greenspan just finished. No rest for me!

All the best,
Dave Donhoff
Home Finance USA
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