"People think I’m disciplined. It is not discipline. It is devotion. There is a great difference." Luciano Pavarotti

To pay an origination fee or not? Actually we get many calls referencing closing costs and origination fees. In Charlotte it is traditional to pay an origination fee and in many cases the lowest rates are quoted with 1% origination fee and 1% in discount points. This can create confusion over the rate for the day versus the costs to close.

Let’s do an example: Assuming a $300,000 loan an origination fee of 1% is $3000 and a discount point of 1% is $3000 for a total of $6000. The rate for this scenario the other day was 4%. The principle and interest payment for this loan is $1432.25 per month. The closing costs not including pre-paid interest and escrows are $6000 + $2446 (this includes attorney, appraisal, title work and bank fees) for a total of $8446. On the same day (at the same time) you could also get a $300,000 loan at 4.5% with 0% origination and 0% discount fee with a payment of $1520.06; the total closing costs would be $2446. Which of these is the right solution?

When trying to decide which way to go on the structure of your loan we need to have an idea on how long we are going to be in the house. I would use the information from above to do the following analysis. The difference between Principle and Interest payments for both options is $87.81 ($1520.06-1432.25) per month. The difference in closing cost is $6000. The number of months to breakeven on the difference in closing cost can be calculated by taking the difference in closing costs divided by the difference in payment. So for our example it is $6000/$87.81 = 68 months or 5 years and 8 months. If you are going to be in the house for longer than this period of time the lower rate may be the best choice. If you are not sure how long you are going to be in your house maybe the zero cost loan is the better choice.

Your lender should be able to talk these and other options over with you and help you find the right loan structure, the lowest rate may not be the right choice for you.

All our best.

@ The Valeo-Croy Team, we are here for you.

The Valeo-Croy Team - (704) 366-7711

Todd Croy - NMLO license #91428
Deanna Valeo - NMLO license #91421

Accessible | Program Expertise | On-Time Closings

The Valeo-Croy Team and Cunningham and Company Mortgage Bankers are Equal Housing Lenders.
This information is for illustration only. It does not constitute an application for a loan or an offer or commitment for Cunningham and Company to make a loan on these terms. Interest rates are subject to change until an application is completed and you lock in your interest rate. The figures noted are estimates and may vary depending on discount points, taxes and insurance. Programs, terms and conditions are subject to change without notice. Mortgage loans are subject to credit qualifications. Normal credit standards apply. Date: 7/26/2010