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The Good Faith Estimate and Meeting My Lender

One of the requirements in the contract for my home is that I secure a loan within two weeks – this is doable when you are working with a local lender who also works fast, hard, and well. Last night, I met with a “Mortgage Consultant” by the name of Nicholas Elko with Equitable Trust Mortgage Corporation, a local lender here in Baltimore. Nick is a solid guy who is very personable, knowledgeable, and gave me confidence he could get me the loan in two weeks. Now, the real meat of the story when you talk about mortgages is the rate and the fees. Nick could be the smartest, hardest working, and friendliest guy ever but if the rates suck, I would still feel like I was being taken advantage of (I did not and would wholeheartedly recommend Equitable and Nick to anyone in Maryland looking for a loan). In a 80/10/10, I’ll be getting 5.875% on my first and 7.5% on my second… both rates seem competitive with the market averages.

80/10/10, what!?

What does 80/10/10 mean? That means I’ll be borrowing 80% of the value of the home as a first mortgage, 10% as a second mortgage, and putting 10% down. It’ll be a 30 year fixed loan on both and the bottom line is I’ll be putting out about $1920 a month for the principal, interest, taxes, insurance (PITI), CPRA (parks fees) and HOA. That value is agreeable to me, despite being $1400 higher than my current rent payment. Yikes.

Oh, and you know how Bankrate always lists the lowest rates available? Try to get one of them – you probably never will. Those rates are like teasers for movies, they show you all the awesome action scenes and never any of the super cheesy and badly acted romance scenes guys hate. They’re also from little no-name banks in random little towns nowhere near you. I don’t know about going to a local lender that isn’t actually local to you. Anyway, I’m digressing…

Mortgage Fees

Remember when I talked about LendingTree [3] charging me $995 for loan related fees? How did a local lender compare? They came in at far less. Let us compare:

Expense LendingTree Equitable
Tax Service Fee $45 $80
Underwriting Fee $375 $150
Processing Fee $375 $375
Document Preparation Fee $175 n/a
Credit Report $25 $45
Flood Certification n/a $18
Total $995 $668

Those fees are only related to the first mortgage, on the second the only fees are a $200 Processing Fee and the $18 Flood Certification Fee – I can only imagine what the LendingTree fees would be on the second mortgage. So with Equitable Trust I’ll be saving at least $327 on the loan related fees even though it’ll be a rush job, which is 32.8% discount.

After you add in a whole bunch of other non-loan related costs, Maryland’s cut of the action, prepaid taxes, insurance, and taxes – my final dollar amount is $9,893 ($7,227 of it being “closing costs”). That means my closing costs will be 2.45% of the value of my home, in light with expectations and every metric I’ve heard (3%).

15-Year Rates

A reader, risk, noted that he knew of a 15 year fixed rate on the second mortgage of 5.99% (this was before the recent quarter point bump). The second 10 I have now is a 30 year fixed rate but the disparity in rates appears significant. Using Bankrate’s calculator [4], the monthly payment of the second loan at 7.5% (my rate) will be $206.27 with the total payment being $74,254.85. At a 15 year 5.99% rate, it’s a payment of $248.75 with a total payment of $44.779.86! While the monthly payment isn’t significantly different ($42), the total payout is $30,000 apart in interest!

I’ll have to call up Nick tomorrow and ask what rate I would get if I only had a 15 year loan on the second. In all fairness, I asked for 30 fixed but never specified what I wanted on the smaller loan (I didn’t even think about it). Plus, we had a talk about the loans and he said Equitable typically sells the loan after a little while because of their asset size. With under $100M in assets, they live off selling the loans to bigger outfits, so they get paid for the legwork. I mean they will get paid based on the loan but it’s not like that interest goes into their pockets. If they were pocketing the $30,000 difference, it might be a red light.

Between when I first wrote this post and when I published it, I talked to Nick. When I drop it to 15 year loan my rate is the same, 7.5%, which is a difference of $5,000 over the life of the loan. My payment jumps to around $275 a month… my plan is just to keep it 30 and make the larger payments. With my rate being the same, it will make no difference.

Why wouldn’t I just keep the loan as is and prepay? Since you pay more interest up front, you are making interest payments forward on what you’ve loaned (I don’t know if the terminology is correct) even if you pay it down faster later on. I’ll talk to him tomorrow and we can sort it all out, it probably won’t make much of a difference given the size of the loan and how I do plan to pay it off faster.