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Rockford Homes For Sale


Mortgage Loan Discount Fees
Basics

The more you pay a lender up front in the loan discount fee the lower your interest rate will be.

This may make sense for borrowers who want a very low interest rate over a long period of time.

If you plan on keeping your property and mortgage for a very long time this may make sense. You are paying up front for the right to pay less over time.

 


Refinancing

Often times this kind of a charge is made in a refinance. The borrower charges this loan disount fee as part of their closing costs. This is using some of the equity in the property as payment to lower the interest rate. In this way the borrower's ongoing monthly payments will be lower. This is a cash flow management tool.

Time Frame

Keep in mind that many borrowers do not keep their mortgage for very long even though they plan on keeping the property in the long term. Borrowers often refinance their loans either to lower their monthly payments or cash out equity, or both. This is usually an option for many property owners because the value of a property goes up over time. It can be a temptation as the value rises and equity becomes available.

Is This Right For You?

You can do some quick math to see if this makes sense for you.

Your savings over time with a lower interest rate and monthly payment should be more than the cost up front of the fee.

The other way to look at it is that you are using some of your equity in a refinance in exchange for a lower payment than would be otherwise possible.

In a rising interest rate environment this is one way to get a better interest rate.

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