In this guide, I’m going to share strategies to lower mortgage fees and secure the best possible rate, drawing from my extensive experience in refinancing and acquiring new mortgages since 2003.
While mortgage fees are a standard part of the process, some can be excessive or hidden. It’s important to understand these fees to negotiate better terms.
Deciphering Mortgage Fees
Mortgage fees tend to be fixed, irrespective of the loan size. This makes smaller mortgages relatively more expensive. For instance, on a ~$1M mortgage refinance, certain fees like the Application Fee ($100) and Commitment Fee ($915) could potentially be waived, saving you around $1,015.
Vendor Fees and Title and Escrow Fees are trickier to negotiate as they involve third parties. The key is to understand each fee in detail to effectively negotiate with the bank. For example, my refinancing fees totaled approximately $3,136 after receiving a $500 discount.
Understanding the Mortgage Point System
Points are additional fees charged by banks, varying with the loan size. For instance, a $1,000,000 mortgage might have various costs based on different interest rates and associated points:
- 2.25% rate with 0.375% points equals a total cost of $7,386.50.
- 2.375% rate with 0.00% points equals a total cost of $3,636.50.
- 2.5% rate with -0.375% points results in the bank paying you $113.50.
I generally advise against paying points. Instead, consider no-cost refinances, which involve a higher interest rate but no fees.
Leveraging Incentive-Based Mortgage Pricing
Many banks offer better rates or fee reductions based on your deposits. For instance, Citibank provides a 0.25% point credit for deposits over $1,000,000. You can take advantage of this by transferring funds from other institutions. For example, moving a Rollover IRA from Fidelity to Citibank could yield significant savings and incentives.
However, be mindful of higher trading costs and the risk of having too much money with one institution.
Reducing Mortgage Fees: A Strategic Approach
- Get Competitive Quotes: Shop around for the best rates and use these quotes to negotiate with your preferred lender.
- Scrutinize Each Fee: Understand and question each fee, and ask which ones can be waived.
- Analyze the Cost-Benefit of Paying Points: Consider your long-term plans and whether paying points makes sense.
- Explore Incentive-Based Pricing: Check with your bank for any deposit-related incentives or discounts.
- Be a Loyal, Multi-Account Client: Banks often offer better deals to clients who use multiple services.
Investing in Real Estate Smartly
With a better understanding of mortgage fees and how to minimize them, you can focus on real estate investment. Consider platforms like Fundrise for hassle-free real estate investing. Diversifying your real estate portfolio beyond your primary residence can offer stability and capitalize on demographic trends.
