For consumers the shopping for the Better Loan is difficult when Lenders are quoting Different Rates. The 2010 Good Faith Estimate was intended to assist borrowers Shopping for the best Mortgage, however many lenders have chosen to develop their own "Initial Fees Worksheet" because the 2010 Good Faith Estimate is lacking
- Because it requires lenders to disclose both buyer and sellers closing costs.
- Fails to Estimate the cash that will be needed at closing
- Fails to emphasize that the "Total Origination Fees" (Line items 1 & 2 and Totaled as "A") are the most important number for comparison.
- Fails to emphasize that the"All other Settlement Services" (Line Items 3- 11 and Totaled as "B") are generally not controlled by the lender.
- Lenders can intentionally present lower "All other Settlement Services" in order to make their estimates appear better than others.
- The shopping grid instructs borrowers to show the Total Settlement Costs, Controllable and uncontrollable amounts.
- The shopping grid that is a part of the 2010 GFE gives very little instruction on how to compare different Interest rates.
I have a calculator here http://www.gfefordummies.com/OtherLoanOptions.php that can compare up to three different rates/closing cost options. Borrowers not wanting to use the calculator would want to create a table that lists closing costs and monthly payments for the loans they are comparing. They would then want to determine the difference in the closing costs and the Monthly Payment. Dividing the Closing Cost difference by the savings per month will tell them how long it will take to break Even by paying the higher closing costs.
Example: Say the difference is Closing Costs is $1,000. and the lower rate saves the borrower $50.00 per month. The break even would be 20 months. So if the borrower has the cash to pay the higher closing costs and intends to own the home longer than 20 months, it would make more sense to pay the higher cost.
The payment of higher closing costs to receive a lower rate of interest is something to discuss with your loan officer.