There are a number of different mortgage costs out there that could potentially add a large amount to the total cost of your mortgage. In order to save as much money as possible, you need to be aware of some of these mortgage costs.
1. Application Fees
Many mortgage lenders regularly charge application fees. When you go to apply for a loan, they are going to charge you some type of fee just so that you can fill out paperwork. They are not guaranteeing that you are even going to be approved for a loan. This is a fee that you have to pay them just so that you can potentially work with them. There are many mortgage lenders out there that do not charge this fee, though. Therefore, if someone tells you that you have to pay a fee just to apply, you should check out some other lenders first. Avoiding this fee should not be difficult as long as you make it a priority to.
2. Yield-Spread Premium
The yield-spread premium is another cost that is commonly charged in the mortgage industry today. The yield-spread premium is something that is paid to a mortgage broker in order to get a client to agree to an interest rate or loan program. For example, if a lender wants a client to take a 30-year fixed-rate mortgage instead of an adjustable-rate mortgage, they might be willing to pay a premium to the mortgage broker to accomplish this. Even though they may not advertise that they are going to charge this fee to you, it is eventually going to come out of the money that you are paying for the mortgage.
3. Risk-Adjusted Rate
Many times, lenders are also going to charge you what is called a risk-adjusted rate. This means that they are going to add a premium to the interest rate because of the amount of risk that they have assessed for you. For example, if they believe that you are a risky borrower to work with, they are going to add a certain premium to the risk-free interest rate. This means that you are going to have to pay more for the mortgage than you might have thought.
4. Prepayment Penalties
You should also pay attention to prepayment penalties with your mortgage. Many lenders regularly charge prepayment penalties to their customers in order to discourage them from trying to pay down the loan. For example, if you pay more than a certain percentage of the balance of a loan in any given year, they might charge you a certain penalty. This can even affect you when you go to sell the house and pay off the mortgage.
5. Closing Costs
The closing costs of a mortgage are also going to be a significant expense that you need to watch out for. Most of the time, you are going to have to pay thousands of dollars just to close the loan. When you are shopping for a loan, do not forget to factor in the closing costs.