Orlando Mortgage Blog

Let's set the facts straight about mortgage ads today that say "We Pay Your Closing Costs". Actually you still pay them, but in a different way. This is accomplished by offering you an interest rate "Buy-Up". If you take a higher rate the lender is able to offer you a Rebate Credit to your closing costs. The higher the rate, the higher the rebate. These offers can and do vary by thousands of dollars from one lender to another. That's the real price difference one company to another and that's where our pricing excelsl!

Zero Closing Cost ads get your attention. A borrower can take a lower rate a lender offers and pay their own closing costs at closing on a purchase or refinance, or roll them in the new loan on a refinance using available equity. But, you can choose to take a higher interest rate and have a lender make a credit towards some or all of the closing costs and prepaids. Compare quotes at the same rate, the higher the rebate, the better the deal for you. Either way, a borrower is paying them either out-of-pocket, equity or by taking a higher rate. Once again, it's all about the rebate amount you're offered.

Here are a couple examples of why you might choose one over the other:

• If you anticipate paying the loan off in a short period of time, say 3 to 7 years, then taking a higher rate and having the lender rebate credit pay some or all of your costs on the loan may be your better deal. Why, because let's say you took the higher rate and the lender credits 2% of your loan amount to your costs on a $200,000 mortgage. That would be $4,000 paid toward your costs. Even if you would be getting a rate let's say 0.50% higher than the basement level and lower payment the lower rate option gives you, you could not possibly equal $4,000 in payment savings over that period so you'd be ahead of the game using the buy-up in this situation with less money paid in the loan overall at early payoff. 
• If you expect to be in the home a longer period of time like 7 to 10 years or longer then the lower rate and therefore payment would at some point exceed the amount of the additional lender credit in the previous example and you would save at the lower monthly payment level for the remaining life of the loan.

I'd be happy to review these options for you to help you make an informed comparison. We all have the same interest rates. You'll soon see, we don't all offer the same rebates. That's why it is so very important that you make detailed head-to-head comparisons.

The difference between quotes is not rate. It's the Rebate they keep or pass along!

Bill Wilbanks