Let’s get something out of the way upfront – mortgage lenders are NOT non-profit in nature.
While not all banks / lenders offer the same pricing (or have a similar overhead – think Rocket with their $1M per shot Super Bowl ads), none of them work for free.
Rest assured; they WILL make their money.
To understand the “how” if you think of a seesaw with rates on one side and fees on the other, you can go higher on one to go lower in the other or vice-versa.
The question is: when obtaining a mortgage, do you pay the lender now (higher fees) or later (higher rate)?
This typically comes down to a few considerations:
- How long do you intend on keeping the loan / house? (in general, the longer you keep the loan, the more important the rate becomes)
- Do you HAVE the option (read: money in the bank) to pay more in fees, for a lower rate?
- What is the “cost of lost opportunity”? (if you take the money out of the bank or investment to buydown the rate, what are you losing by not having that money invested?)
- Any tax implications to consider between paying the bank? (might be worth a call to your CPA or tax advisor)
Certain lenders will mention that you should also consider what the market will do (i.e., there may be an opportunity to refinance with a future rate drop)…
…But I’ve been doing this long enough to realize that “if you know that you don’t know, you know more than most” (as my grandfather used to say).
Nobody knows how the market is going to move, pertaining to interest rates or home values (read: if rates drop, but so do home values, you may not have the equity position to get the lower rate).
All of that said, we try not to make a habit of predicting, but instead, focus on preparing with the information at hand.
As with anything, a conversation to discuss your short and long-term financial objectives is the best starting point.
You know where to reach us