Your mortgage loan
Fairly priced, ... or not?
DOI:
https://doi.org/10.61190/fsr.v17i3.4921Keywords:
Discount points, Yield spread premium, Settlement costs, Mortgage loanAbstract
Comparing the loan products of different lenders may well be the most difficult part of buying a home. Although time and resources spent comparison shopping may save hundreds, even thousands of dollars, comparing one loan to another isn't as easy as just comparing contract interest rates; borrowers must shop interest rates, points (both discount and premiums), and fees. Unfortunately, the process is complicated by inadequate regulatory disclosures, inconsistencies among lenders, and legal loopholes ripe for abuse. We present a simple four-step procedure that borrowers or financial planners can utilize to accurately compare loan products. We document many of the abuses borrowers must be wary of, in particular, the widespread misuse of the yield spread premium, and show how our process prevails, to the borrower's benefit. Our process should be of interest to both academics teaching real estate, as well as practitioners counseling their clients.
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