3 Reasons Why You Are Overpaying For Your Mortgage
By: Patrick Boyaggi
Though Ben Franklin is falsely credited for saying “A penny saved is a penny earned,” it doesn’t make the wisdom any less relevant, especially when it comes to mortgages. Despite this truth, most homeowners are overpaying on their mortgage and they don’t realize it.
Here are the three major reasons why home buyers can overpay:
- The Lender: Prefers different borrowers and different properties — While most loan rates are in the same general ballpark, every lender has variable tolerance for different profiles. For example, some lenders like condos, some don’t. Some lenders are more comfortable with freelancers or entrepreneurs, and some are less. These variances can add as much as .50% to the recommended rate.
- The Commission Structure: Drives up your interest rate — The average Mortgage Loan Originator (MLO) is paid 1% of your loan amount as a commission by the lending institution. That commission is rolled into the cost of your loan. Essentially, you are paying the MLO’s commission over the life of your loan. This can increase your interest rate by as much as .375%. Said more simply, a 1% commission to them can be .375% more to you.
- The Mortgage Loan Originator: Focuses on their numbers more than yours — Since MLOs are paid on commissions, the individual you deal with has ultimate authority to set the rate, no matter what rate their company recommends. That’s a lot of power and those trade-offs can impact you significantly. The typical variance is .25% in either direction from a recommended rate.
How can this affect you? Let’s try an example. Say Sally Shopper bargains hard and is a known rate shopper. She is paired with Bob Broker as her MLO when shopping for her mortgage. Bob may grant Sally a discount of .25% since he knows he has another deal with Harry Homebuyer coming up. Bob knows Harry won’t shop, so he can overcharge him .25% to “make it up” and come out “even.”
When you put these three factors together, the variances can add up. For example, on a $400,000 loan with a 30-year fixed-rate mortgage, if you close with an interest rate of 4.50% instead of 4.00%, you will overpay $41,982 over the life of your loan!
Here’s another way to think about it: You can have a very nice car for free, if you take the time to shop for your mortgage.
This is why we believe it’s critical that everyone secures a fair market deal and does not overpay on their mortgage. The issue is that it’s nearly impossible for the average person to figure out what’s the right mortgage for their exact situation, which lender is the right one or what’s going on behind the scene with their broker.
To help you understand these complexities and ensure you get a fair deal, we’ve created Own Up to do the following for all homebuyers:
- Many lenders customized for your needs — We evaluate your profile to determine the mortgage that fits your needs, timeframe and risk tolerance. We’ve formed a network of certified lenders, so you are not unfairly subjected to any one lender’s preferences. These lenders are local to each market and can solve every loan scenario. We present their offers to you, so you don’t have to figure out which lenders offer the best terms. To date, 100% of our pre-approved buyers successfully close with the lenders we’ve found for them.
- Low, transparent fees — At Own up, we charge our lenders a fee that is a fraction of the average fee (.25% v. 1.00%). So, on a $400,000 loan we are paid $1,000 compared to the MLO who will be paid $4,000. What’s more, the savings get returned to you in the form of a lower interest rate.
- Price Transparency — We don’t ever want our customers to question the integrity of the interest rates we secure or the intentions of our mortgage experts. Therefore, we “flip the broker screen” to give you the ability to see all the offers we receive from the lenders in our network and the interest rates offered by national lenders . This way no one at Own Up has the ability to use their personal discretion to mark up or mark down the terms offered to our customers. Everyone is treated equally.
