Do Mortgage Companies Really Pay All Your Closing Costs?
Mortgage companies have been claiming that they will “pay all your closing costs”. As a licensed mortgage loan originator, my first thought was “How are they able to do that?” A mortgage company offering to pay for everyone’s closing costs could not sustain profitability. They would go broke! So how is this possible? Well, it’s simply a play on words – a classic case of bait-and-switch.
Let me explain how this really works.
There are many economic (and sometimes political) factors that determine mortgage interest rates. Rates and rate pricing change sometimes daily based on the bond market, the Federal Reserve, inflation, and other factors. A PAR rate is set, based on this criteria. The PAR rate is an interest rate used as the reference point for which a mortgage lender will either pay a rebate (yield spread premium or negative points) or require discount points for a mortgage. All mortgage brokers and banks use it daily to determine the interest rates they can offer their borrowers. Accordingly, everyone is on the same playing field.
So who is paying for your closing costs? You are!
Allow me to clarify: If the PAR rate on any given day is at 4.00%, then that is the available rate with no additional “buy down” fees, discount fees or negative points. By raising the interest rate that is offered to the borrower up to 4.5%, the borrower will receive negative points or credits towards their closing costs directly from the lender. The amount the mortgage company raises the rate above PAR will directly affect how much you (the borrower) will get in return as a lender credit. This credit, in addition to processing fees, overpriced origination fees and credit report fees can all be enough to cover your closing costs. So, the mortgage company isn’t really paying your closing costs…you are paying for it with the rate increase and unnecessary fees.
Don’t be fooled by these misleading marketing tactics! As a matter of fact, my best advice is to work with a mortgage company that you can trust. Do your research on the web to see which local company has the most 5 star reviews. Call them directly and ask what the current PAR rate is. All mortgage companies are working with the same rates every day. Choose the one that is honest about how the system works and will give you honest answers to your questions…not a play on words.
Compass Mortgage, LLC
Steve Ledford brings nearly 15 years of mortgage, banking and real estate experience to Compass Mortgage. A Lakeland native, Steve’s understanding and expertise in the Central Florida real estate and business markets is a valuable asset to the Compass team. His work ethic and dedication to his clients ensure that every borrower he works with is not only a client for life, but a friend. Steve received his B.S. in business from the University of South Florida. When it’s time to relax, he enjoys spending time with his family, playing music in a band, traveling and tailgating at USF football games.