Mortgage Rates

• Mortgage rates are the percentage interest the lender charges you for the privilege of using its money. Interest rates vary according to loan term and the creditworthiness of the borrower. The more risk involved in giving the loan, the higher the interest rate the lender charges. Borrowers with poor credit, low or no down payments, longer loan terms and higher debts are more likely to default on the loan, so lenders will only lend money to these borrowers if they are able to make enough money on the loan for it to be attractive. Minimizing these risk factors by putting more money down, paying down debt, improving his credit score and history or going with a shorter loan will improve the interest rate a borrower can get.
  
  

Closing Costs

• All loans have costs associated with them. There are many people involved in processing and funding a loan, and they all need to be paid. There are also taxes to pay and insurance to purchase. In addition, some borrowers opt to pay money upfront in order to get a lower interest rate. All loan fees must be fully disclosed by federal law on a Good Faith Estimate (GFE). This document is universal and must be used by all lenders, in order to prevent consumer confusion and to aid in providing a set format that allows for better comparison of lender offers.
  
  

Loan Origination

• Loan origination fees are the fees involved with the application process, including gathering and coordinating documentation the underwriter uses to make a loan decision. The application fee, loan processing fee, credit report fee, broker fee and underwriting fee and wire fee are all flat fees that may appear on a GFE. A loan origination fee will also appear on the GFE, along with any borrower-paid discount points to reduce the interest rate or lender-paid discount points that are credited to the borrower at closing. These items are not set, but are percentages of the loan amount.
  
  

Third-Party Services

• Fees collected for third party services appear on the GFE as well. These charges include the appraisal fee, surveyor fee and the pest inspection fee, along with other required inspections. This pays for the work performed by these affiliated tradesmen. The attorney or closing agent fee pays the person or company that facilitates the actual closing of the loan and cuts the checks. Title search and insurance fees, along with flood certification, checks to make sure the property has the proper chain of ownership and has no attachments that would prevent its sale.
  
  

Government Fees

• Government fees include both state and local fees. Many states tax a loan based on the loan amount. Counties and municipalities charge a fee to transfer a deed and record the new one. The fees charged vary from area to area.
  
  

Escrow Fees

• Escrow fees are money that is collected on the borrower's behalf and placed in an account to be paid out when bills come in. Property taxes, homeowner's insurance, mortgage insurance and homeowner's association dues are escrow charges found on GFEs. At closing, borrowers also pay the prorated portion of the interest due in the month that they close.
  
  

Considerations

• Many lenders quote a lower interest rate but charge higher closing costs. Others charge less in closing costs, but pay for it by charging you a higher interest rate. Neither of these are necessarily wrong, as long as they are disclosed--what's best for you depends on your needs. However, you need to be aware of this to accurately compare the merits of two different offers.