Mortgage Rate & Costs

When considering mortgages, there are two factors that determine the total cost of the loan.  They are the interest rate and the costs associated with the transaction.  When choosing a mortgage, you should always consider the interest rate and costs together, because they are linked.

• Mortgage Rate vs. Costs
• Settlement Charges

Mortgage Rate vs. Costs

Do you want to pay points to further reduce your mortgage rate? Do you want a home loan with little or no closing costs? On Q Financial Mortgage Consultants are excellent at offering mortgage lending options for our customers with purchase loan or refinance needs.

One of the deciding factors is how long you plan on owning the real estate or property.  Just use our calculator to help compare each mortgage rate and its costs.  See how long it will take you to recover extra costs. And find the best mortgage rate you possibly can.

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Settlement Charges

When calculating your mortgage rate and figuring in associated costs, there are also settlement charges to consider which include closing costs and Prepaids.  Closing costs on a mortgage loan are non-recurring.  Prepaids such as interest, taxes, and insurance are recurring.

Because Prepaids have nothing to do with your mortgage rate or how your loan is structured, they aren’t important when considering your mortgage option.  Most important are interest rates and costs.  But Prepaids do affect you financially, especially at closing.  They could be the most misunderstood settlement charges in the entire mortgage process.  Let us review them one at a time.

Prepaid Interest: Prepaid interest varies depending on which day of the month you close your home loan.  For example, when you purchase a property and you close on the 15th day of a 30-day month, you will pay approximately 15 days interest. 

In this example, you won’t own the real estate or property until the 15th and, therefore, will only pay loan interest for the days you own it.  Because mortgages are paid in reverse, you won’t directly pay a mortgage payment for the month after you receive your loan, since the interest due has already been paid.

When refinancing and possibly lowering your current mortgage rate, however, you will pay a full month’s interest.  The prepaid interest works as explained in the purchase example above.  But the rest of the month’s interest will be added to your old lender’s payoff.  Therefore, you will pay a full month’s interest no matter which day you close on a refinance.  And again, because mortgages are paid in reverse, you will not directly pay the next month’s payment to the lender, since the interest due has already been paid.

Taxes and Homeowner’s Insurance: If you pay these items monthly as part of your mortgage payment, there are typically two months of the premium due at closing, in addition to any unpaid premiums.  When refinancing, for example, if the insurance was paid three months ago, the new lender would collect nine months premium, plus an additional two months premium to have a two month reserve in your escrow account after they are disbursed to your insurance company.  Therefore, on a purchase transaction, lenders take the full year premium, plus two months reserves, which again leaves two months reserves after disbursing to your insurance company.

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