April 2nd, 2017 3:21 PM by Joan Rusco
You may not want the lowest mortgage rate available. We know that’s a bold statement for a VA mortgage blog to make but it’s true and we’re going to explain.
There’s more to a mortgage than rate. A lender can also charge an origination fee. Let’s look an example to illustrate what impact this can have on your home purchase or refinance using a VA loan.
Lender A offers a VA mortgage rate of 3.875% and they charge 1.5 points to originate that loan. The monthly payment on a $200,000 loan would be about $940. Lender B offers a rate of 4.125% on the same loan with an origination fee of ¼ point. Monthly payment would be $969. So you’d be better off with lender A right? Not necessarily. Let’s look at the real numbers in our example.
If you go with lender A you’re going to pay $3,000 in origination fees to get that lower rate. Lender B with the higher rate only charges $500 in origination fees. To get that lower mortgage rate you’re going to pay an additional $2,500! It would take you over 7 years to break even! Do you still want that lower mortgage rate?
Of course the VA restricts the amount of fees a borrower can pay so as a home buyer you may turn to the seller to help pay fees. Sometimes that works although a seller is also looking at their bottom line and they’re probably going to take the offer that costs them the least.
As you shop for a VA loan look beyond the rate. It’s a complicated business and that’s why we do what we do. We help veterans sort through the real cost of a VA mortgage. VALoansMN will be your go-to-guy to help you make the best deal possible on your next purchase or refinance. Pick up a phone and call us today 612-240-9922. Brad is waiting for your call.