When looking for a loan, most borrowers look past everything else and concentrate on securing the lowest interest rate they can. But what people fail to realize is that a great deal of money can be saved by taking notice of the fees paid when closing the deal.
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Fees can accumulate. As a matter of fact, some creditors make use of higher closing costs to offset their interest rate being so much lower than the competition. Ultimately, the borrower may end up with higher expenditure.
Closing costs are a variety of detailed payments that are added to your loan. Varying between small amounts to as much as several thousands of dollars, they are meant as compensation for the services offered throughout the course of your loan transaction. Each lender charges different sorts of closing fees, with some of them unafraid of charging so-called 'junk fees' that merely increase their profitability and provide no apparent benefits to the borrower.
Search for multiple loan offers
So how do you know which loan offer is the right choice? To answer that, look for loan offers from different providers without closing the deal. They will initially give you a rough estimate of their interest rate and the various appended closing costs. You will notice that every lender has their own style of charging a customer with superfluous fees, complete with unique names and supposed purpose.
What you need to focus on instead is the total amount you'll be paying.
Negotiable fees
After finding out the total of all costs, you can then proceed to determining how much they will affect your expenditure throughout the life of the loan by checking up the annual percentage rate (APR) per loan offer. APR translates the total cost of the loan as if it were an interest rate for a whole year.
Making savings does not end there. Many lenders charge particular fees whose rate is open to discussion. A fine example is the origination fee, a payment that typically ranges from 0.5% to 2% of a given loan amount. While loan officers can enjoy higher commission rates the higher they charge the borrower, they can readjust certain fees in order to make business. Fixed-fee lenders, on the other hand, are paid a flat rate and cannot modify fees for your convenience.
Understanding each fee
A responsible borrower is expected to know what he is paying for, identifying each fee that his lender is charging. Some loan officers include unique fees not found in the competition, most likely for a service that does not require charging at all. For instance, payments for services like lender inspection and document preparation have no direct association with making the loan, and are simply junk fees to increase the lender's profit margin.
However, certain fees are justifiable on a case-to-case basis. To illustrate, an application fee to get a loan quote is not typical, unless you have a poor credit standing or unusually sophisticated finances.
Third-party fees
Conversely, borrowers are left with no choice but to pay fixed-rate fees charged by third-parties. These include appraisals, recording fees, transfer taxes, and more.
What you need to look out for is if your lender has higher third-party fees than what the competition charges, because it means they are only charging you for their own benefit.
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