How to Avoid Overpaying for Your Mortgage

by Jeremy Thuveson

Buying a new home can be very exciting. However the mortgage process can be overwhelming; seeing the paperwork and numbers that cause stomachs to drop, coining the phrase “sign your life away.” Some may concede in negotiating, others do not know they can. Generally, people want to be in their new home as soon as possible. Not negotiating can be a futile mistake.

Each year millions of home buyers and refinancers unknowingly pay far above average for their mortgage. The chart shows 21 lenders in Nevada having rates that differ by 1.5%; same terms, same day, and negligible difference in closing costs.

Example of the damage:

  • $275,000 mortgage over 30 years
  • Good loan: 4.25%
  • Bad loan: 5.75%
  • Difference in interest: $90,717
  • Difference in monthly payment: $252
Home Loan Rates Offered

(Chart represents the purchase of a primary single family home in Nevada for a 30 year fixed FHA loan, with a 680 or above credit score. Source of data: Informa Research Services, Inc. in correspondence with the Consumer Financial Protection Bureau)

We can see there is a problem. How can you avoid being on the high end?

First, know what is important. No, it is not the online teaser rates. What matters is the three page Loan

Loan Estimate form

(figure 2)

Estimate given to a borrower by a lender once a home is picked out and certain information has been stated. See figure two for page 1. The Loan Estimate determines the numbers that will be signed at closing. There are two significant areas on the Loan Estimate a lender has the power and flexibility to change, the interest rate and origination charges.

Second, solve the problem with one of these methods:

1) Ask for a lower interest rate or fees. Utilize those negotiating skills as you would with the purchase of a vehicle. Be careful and make sure that if the interest rate is lowered, there is no increase in fees, and vice versa. This method can save money. The drawback is there’s no guarantee you have a fair loan, it may simply be less of a bad deal.

2) Another way is to shop around. Here again, you have to be careful and learn how to compare multiple Loan Estimates. This is time consuming. In the end, money may be saved, but as above the mortgage may just be less of a bad deal. Unless you could obtain and decipher estimates from the 21 different lenders there is no telling for sure if your loan is fair.

3) Get an independent third-party review of your Loan Estimate. With a review you can know if your lender is treating you fairly. If something needs to be negotiated, you will know exactly what it is and by how much it should be lowered. If need be, you can simply find another lender that will match what you now know to be fair.

Most people get a home inspection, but fail to get a ‘loan inspection.’ More information on getting a review of your Loan Estimate can be found at MyHLR.com Ensuring that your home loan is a fair home loan. Use one of these methods and avoid having mortgage regret.

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