When shopping for a mortgage, understanding how to calculate and compare points and fees is essential. This helps you determine the true cost of different loan offers and select the most affordable option.
What Are Points and Fees?
Points are upfront fees paid to the lender at closing, often in exchange for a lower interest rate. Fees include various costs such as origination fees, appraisal fees, and other charges required to process the loan.
Calculating Points and Fees
To calculate points, multiply the number of points by the loan amount. For example, 1 point on a $200,000 loan equals $2,000. Fees are summed from all charges listed in the Loan Estimate, then expressed as a dollar amount or percentage of the loan.
Comparing Loan Offers
Use the Loan Estimate form to compare the total points and fees across different lenders. Focus on the "Total Loan Costs" and the "Interest Rate" to evaluate the overall expense. Calculating the "APR" (Annual Percentage Rate) provides a comprehensive comparison of costs over the loan term.
Tips for Better Comparison
- Review the Loan Estimate carefully for all fees.
- Calculate the total upfront costs, including points.
- Compare the APR to understand the true cost.
- Ask lenders for clarification on any fees.