If you own a home, and have a 30 year mortgage for $200,000 at an interest rate of 8%, then you are making repayments of $1,468 every month.
So, what if you could make a change to a new rate? What would your saving be, and how long would it take to break even, assuming $2000 closing costs?
If your new rate was 7.5%, your new monthly payment would be $1,398. This represents a net saving of $70 per month, and it would take 29 months to break even. With a revised rate of 7%, the monthly saving would be $137, giving a reduced monthly repayment of $1,331 and only 15 months to break even.
If your new rate was down to 6.5%, your new monthly payment would be $1,264. This would give you a saving of $204 per month, and it would take 10 months to break even. With a rate down to 6%, the monthly saving would be $269, giving a reduced monthly repayment of $1,199 and only 8 months to break even.
If your new rate was 5.5%, your new monthly payment would be $1,136. This represents a net saving of $332 per month, and it would take only 7 months to break even.
With a revised rate of 5%, the monthly saving would be $394, giving a reduced monthly repayment of $1,074 and only 6 months to break even.
Looking at Mortgage Fees in detail
Collection of data in 2003 has helped determine the level of fees consumers have to pay to borrow money to buy a home in the US. Let's assume you'd like to borrow $180,000. These are the average fees you would have to pay.
To the lender/broker, there is an administration fee of $336, an application fee of '205, a commitment fee of $498, and a document preparation charge of $194. Then there's a funding fee of $228, a fee to the mortgage broker of $839, a processing fee of $320. Add in a tax service of $73, an underwriting charge of $269 and a wire transfer fee of $31, and the lender/broker charges amount to $2,993.
Other people take money off you too. These third-party charges consist of an appraisal at $327, an attorney or settlement fee at $445, and a credit report for $29. Add in pest and other inspection fees for $68, a postage or courier charge of $45, and survey fee of $174. Then there are fees for title insurance at $605 and title work at $200. Third parties account for $1,910.
Finally there are Government fees: a recording fee of $76 and various taxes which amount to $1,339; a total to the Government of $1,415.
So, add those up. $2,993 to you lender/broker; $1,910 to third parties, and $1,415 to the Government. That amounts to a whopping $6,318 on average that you had to pay in 2003 to enable you to borrow money to move house. It will of course be more now. Money well spent?
Gus Taperman holds a Bachelor's degree in Commerce and completed his master's in Business Administration . He is working as writer and financial consultant to find a Personal loans, Debt consolidation, home equity loans at cheap rates visit www.taperman.com