Credit Report
With your permission, your lender will order a third-party credit report that lists any outstanding loans and your repayment history. This typically costs less than $50.
Application and Processing Fees
This cost, typically a few hundred dollars, covers the lender’s work to evaluate your ability to repay the loan. Some lenders will credit this back to you at closing.
What is APR?
The APR, or annual percentage rate, is the sum total of all your borrowing costs expressed as a percentage interest rate charged on the loan balance.
| For example: After fees, the original interest rate quote of 5.875% might work out to a 6% APR loan, where the interest costs about $6,000 per year for every $100,000 borrowed, and the principal payments are calculated based on the length of the loan term (for example 15, 20, or 30 years). |
Indexes
The interest rates on variable loans readjust periodically based on changes in an index. Typical indexes include the Federal Funds Rate and Treasury Bill.
Points
When mortgage companies are competing by offering lower interest rates, they may charge you a one-time pre-paid interest payment calculated as a percentage of the loan. Called “points”, this may range from 0.25% to 2% of the loan balance, and is usually paid up front. Points are tax-deductible so consult with your tax advisor about pursuing this option.
Appraisal Cost
Lenders hire experienced, often independent appraisers to evaluate the property’s purchase price, condition, and size compared to similar recent neighborhood sales. This helps ensure the purchase price is not too high, and gives the lender more confidence in funding the loan. Appraisal costs vary depending on the property, type of appraisal, and region.
Miscellaneous Fees
Expect to see miscellaneous fees, such as notary, courrier, and country recording, incurred in the processing of your loan. These fees are typical and unavoidable.
Prepayment Penalties
These vary widely, so be sure you know in advance if your lender will charge a penalty if you refinance or sell, and the certain period during which the penalties apply.