What fees are covered by ZZ Lending in your Zero Points, Zero Fees Mortgage?
With every refinance or purchase loan there are closing fees associated with the transaction. With our Zero Point, Zero Fee Mortgage, we cover nearly every non-recurring mortgage-related fee. These include:
- Lender Fees
- Processing Fees
- Credit Reports
- Tax Service and Flood Certificate Fees
- Appraisal Fees
- Escrow Fees
- Lender’s Title Insurance
- Recording Fees
What fees am I responsible for in your Zero Points, Zero Fees Mortgage?
Sometimes there are transaction-related fees over which ZZ Lending has no control. Examples of these are fees that your homeowners’ association may charge in connection certificates required by the lenders, payoff fees charged by your current lender and subordination fees charged by the bank that services your 2nd mortgage or home equity line of credit. Because these charges are out of our control, our borrowers are responsible for these fees. Additionally, our Zero Points, Zero Fees Mortgage does not cover items the borrower is responsible for on an ongoing basis. These fees are often referred to as recurring closing costs.
Recurring closing costs will occur over time and for as long as you hold a mortgage and/or own the subject property. Items that are recurring in nature are as follows:
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- Prepaid Interest – In a mortgage refinance, this is just an extension of interest from your old loan to your new loan for the current month’s interest. Prepaid interest is interest paid in advance (as opposed to arrears) for the period between the time the lender funds the loan to the first day of the following month. A borrower will skip the following month’s payment with the first payment due the following month. This mortgage payment is in arrears, meaning the payment is paying for accrued interest for the previous month. See full explanation of mortgage prepaid interest below.
- Homeowner’s Insurance
- Property Taxes
- Escrow Impounds – if you were to select them
What is a mortgage loan rebate?
To properly answer the question of what a mortgage loan rebate is, we need to define the different components and fees of a mortgage. In short, after all fees and costs for the mortgage are paid for, the remaining balance, if any, is the mortgage loan rebate. Below are typical questions one would ask when considering a refinance or new home purchase mortgage.
What are closing costs for a mortgage/refinance?
With every refinance or purchase loan there are closing costs associated to the transaction. Typically, the costs are broken down as either non-recurring and recurring closing costs.
Non-recurring charges are any items that are paid only one-time as part of the mortgage transaction and would not occur if you did not proceed forward with the transaction. Items that are non-recurring in nature are as follows:
- Lender Fees
- Processing Fees
- Tax Service and Flood Certificate Fees
- Appraisal Fees
- Escrow Fees
- Lender’s Title Insurance
- Owner’s Title Insurance – only in a purchase transaction. Depending on what is customary in the county the seller may pay for the fee. See link
- Transfer Taxes – generally only in a purchase transaction. Depending on what is customary in the county the seller may pay for the fee. See link
- Recording Fees
Recurring closing costs will occur (i.e., recurring) over time and for as long as you hold a mortgage and/or own the subject property. Items that are recurring in nature are as follows:
- Prepaid Interest – In a mortgage refinance, this is just an extension of interest from your old loan to your new loan for the current month’s interest. Prepaid Interest is interest paid in advance (as opposed to arrears) for the period between the time the lender funds the loan to the first day of the following month. A borrower will skip the following month’s payment with the first payment due the following month. This mortgage payment is in arrears, meaning the payment is paying for accrued interest for the previous month. See full explanation of mortgage prepaid interest below.
- Homeowner’s Insurance
- Property Taxes
- Escrow Impounds – if you were to select them
What is a loan rebate and/or no cost loan? As explained above, there are closing costs associated with every mortgage or refinance transaction and these fees need to be paid for by someone, typically the buyer/borrower (but sometimes the seller, listing agent or buyer’s agent in a purchase) in a transaction. Instead of the borrower paying for it out of their own pocket, the borrower can select a slightly higher interest rate (sometimes only an 1/8th higher), which will result in the lender giving the borrower a rebate. If the loan rebate is large enough, it will pay for all of the non-recurring closing costs, resulting in a no closing cost or no cost loan. In fact, the loan rebate can even cover some or all of the recurring closing costs, effectively allowing the borrower to profit off a transaction. The only caveat is that the rebate is not larger than the sum of the non-recurring and recurring closing costs in aggregate.
Some argue that no cost loan is not worth it as you effectively have a higher interest rate over time, but there are four primary reasons why a borrower would want to select this alternative as follows:
- Free (Zero closing costs) – Let the lender pay for the closing costs. Zero closing costs…zero increase in your loan balance…it’s free. You cannot argue with that.
- Interest rate spreads – Currently point spreads between 1/8th of an interest rate are at the largest they have been in years. In some cases, you will pay just an 1/8th higher. On a $400,000 loan that would be about $30 a month…on a $400,000 loan that would be about $54 a month.
- Refinance – In a refinance, the break even is zero or the payback is immediate!
- Purchase – In a purchase you can have the lender pay for the all of the closing costs and then just refinance months later assuming rates are similar. This is especially effective if you are closing at a time when interest rates are higher than the norm for the particular period.
What fees are required to get a mortgage loan rebate? There are no fees to get a mortgage loan rebate, just a slightly higher interest rate (typically 1/8 point higher) to create a loan rebate to pay for some or all closing costs.
How do I get a loan rebate for my mortgage on a new home purchase? Upon entering escrow, make sure you get a Estimated HUD or Estimate Closing Statement from your chosen escrow company, which will itemize your non-recurring and recurring closing costs. Once you know both of those numbers, we can then calculate the target loan rebate to offset those closing costs.
How do I get a loan rebate for my mortgage refinance? In refinance transactions, we choose our own preferred Escrow and Title providers. As such, we have very good estimates(within reason) for what your closing costs will be. Prior to locking, we can immediately determine what interest rate will result in enough loan rebate to offset closing costs.
How do I qualify for a mortgage loan rebate? In order to qualify for a mortgage loan rebate you need to get Pre-Qualify for your loan, and ultimately complete either a purchase loan or refinance mortgage loan.
How do I sign up for a mortgage loan rebate? All you do is Pre-Qualify for your loan to submit your loan application then we give you a list of available mortgage loans that offer rebates, assuming rates and your credit worthiness qualify.
What is Prepaid interest? Prepaid Interest is interest paid in advance (as opposed to arrears) for the period between the time the lender funds the loan to the first day of the following month. To get a better understanding in how Mortgage Interest (or payments) works see the following list as an example of a January 15th closing:
Mortgage Interest for a Refinance:
- 12/1-12/31 – In arrears – January mortgage payment(or paid through Escrow) to your existing lender
- 1/1-1/15 – In arrears – Paid thru Escrow – 15 days in January is paid to your existing lender.
- 1/16-1/31 – In advance – (Prepaid Interest) – Paid through escrow – 16 days in January is prepaid to your new lender.
- 2/1/-2/28 – In arrears – No payment in February is due. Your next payment is March 1, which covers all of February accrued interest.
Mortgage Interest for a Purchase:
- 1/16-1/31 – In advance – (Prepaid Interest) – Paid through escrow – 16 days in January is prepaid to your new lender.
- 2/1/-2/28 – In arrears – No payment in February is due. Your next payment is March 1, which covers all of February accrued interest..
When issuing a Good Faith Estimate, the standard rule of thumb is to use 15 days due to the uncertainty in the actual closing date. If a competing lender issues a Good Faith Estimate with less than 15 days, then most likely they are understating the Prepaid Interest amount in an effort to earn your business.