Before You Choose a Mortgage, Make Sure You Are Comparing the Entire Loan
If you already have a Loan Estimate from another lender, you do not have to guess whether you are getting a competitive mortgage.
Send us the Loan Estimate and we can help you review it.
At Capital Funding Mortgage, we believe borrowers should compare much more than the advertised interest rate.
Two mortgage offers can look very similar at first glance while having meaningful differences in:
I’m John Madden, owner of Capital Funding Mortgage, and I have been helping borrowers with mortgage financing for more than 25 years.
If you have another lender’s Loan Estimate, I can help you understand what you are actually being offered before you make a decision.
A Loan Estimate is a standardized mortgage disclosure that provides important information about a proposed loan.
It typically shows items such as:
The format helps borrowers compare loans, but understanding which numbers matter most is not always straightforward.
That is where an experienced review can help.
This is one of the most important things to understand when comparing Loan Estimates.
Suppose one lender offers:
6.00% with $8,000 in points and lender costs
and another offers:
6.375% with $1,000 in lender costs
The first lender has the lower rate.
But that does not automatically make it the better mortgage.
The real question is:
How much does the lower rate save each month, and how long will it take to recover the additional upfront cost?
If the higher-cost loan saves $150 per month but costs $7,000 more upfront, the approximate break-even period is:
$7,000 ÷ $150 = about 47 months
If you refinance, sell, or pay off the loan before then, the lower-rate option may not have produced the better financial result.
Before comparing costs, we first determine whether the two lenders are quoting the same type of mortgage.
We look at factors such as:
A 30-day rate lock should not automatically be compared with a 60-day rate lock as though they are identical.
Likewise, a mortgage with points is not directly comparable to a no-point mortgage unless the cost difference is taken into account.
The interest rate is important, but it is only one piece of the mortgage.
We look at:
A lower rate may come with a substantial upfront cost.
A slightly higher rate may come with little or no lender cost.
Which is better depends upon your individual situation.
Discount points are fees paid in exchange for a lower interest rate.
One point generally equals 1% of the loan amount.
For example:
On a $500,000 mortgage, one point equals $5,000.
On a $700,000 mortgage, one point equals $7,000.
That can make a significant difference when comparing competing offers.
If one lender is quoting a lower rate but charging one or two points, we want you to understand exactly how much you are paying to obtain that rate.
Loan Estimates may include charges such as:
Different lenders may use different names for similar charges.
Instead of focusing on individual labels, we look at the overall lender-controlled cost.
For example, a lender advertising “no origination fee” may still charge separate processing or underwriting fees.
The total is what matters.
Lender credits can reduce closing costs.
A lender may offer a slightly higher interest rate and provide a credit that can offset some or all of your loan-related expenses.
We compare:
This can provide a much clearer picture than simply looking at the interest rate.
One of the most common mistakes borrowers make is assuming that every dollar shown under “Costs at Closing” is a lender fee.
It is not.
Your Loan Estimate may also include:
These amounts can make one Loan Estimate appear much more expensive than another even though the actual lender costs are similar.
For example, if one lender estimates $5,000 in escrow deposits and another estimates $3,000, the first lender may initially appear $2,000 more expensive.
But if the final escrow requirement is the same, there was never a true $2,000 difference in the mortgage cost.
We separate these items so you can see the real comparison.
Mortgage insurance can have a significant effect on your monthly payment.
If mortgage insurance applies, we review:
Two loans with the same rate can have different total monthly payments because of mortgage insurance.
That difference should not be overlooked.
APR can be useful because it incorporates certain financing costs in addition to the stated interest rate.
However, APR does not tell the entire story.
It is only one tool in the comparison.
A borrower who expects to keep a mortgage for 20 years may evaluate upfront costs differently than someone who expects to refinance within three years.
That is why we look at both APR and your expected time in the loan.
We also review the actual payment difference between competing options.
That includes:
A $100 monthly savings may sound significant.
But if it costs $6,000 upfront to obtain that savings, you need to know how long it takes to recover the cost.
The break-even calculation can be one of the most useful tools when comparing mortgages.
Suppose:
Lower interest rate
Additional upfront cost: $6,000
Higher interest rate
Monthly payment is $125 higher
The approximate break-even period is:
$6,000 ÷ $125 = 48 months
If you expect to keep the loan much longer than four years, the lower-rate loan may become more attractive.
If you expect to refinance or move within two years, the lower-cost option may be more appropriate.
Cash to close is important, but it should not be used by itself to compare lenders.
Cash to close can include:
One lender may show less cash to close simply because of different preliminary tax or escrow assumptions.
We look behind the total to determine what is actually different.
A quoted mortgage rate may be:
Longer locks can sometimes affect pricing.
We also look at what happens if the closing is delayed.
Important questions include:
These details can matter, particularly in transactions with longer closing periods.
Most mortgage lenders provide legitimate disclosures.
However, some costs are easier for borrowers to overlook than others.
We pay particular attention to:
The goal is not to assume something is being hidden.
The goal is to make sure you understand the entire transaction.
If you are buying a home and already have a Loan Estimate, we can help you review items such as:
This can be particularly helpful for first-time buyers who are unfamiliar with mortgage disclosures.
Refinances require a slightly different analysis.
We look at:
A refinance that reduces your monthly payment is not automatically a good refinance.
You also need to understand the cost of obtaining that savings and how restarting or extending the loan term affects your long-term interest expense.
Loan term can dramatically change the economics of a mortgage.
A 15-year mortgage may have a higher monthly payment but build equity much faster.
A new 30-year refinance may reduce the payment but extend the amortization period.
When comparing two loans, we consider more than the immediate payment.
We also look at how the loan affects your longer-term financial position.
If you would like us to review another lender’s offer, the most useful document is the actual Loan Estimate.
If one has not yet been issued, we can also review a written mortgage quote showing:
The more complete the information, the more meaningful the comparison can be.
Having us review another lender’s Loan Estimate does not obligate you to do anything.
You may discover that the other offer is excellent.
You may discover that another structure could save money.
Or you may simply gain a better understanding of what you are being charged.
Our goal is to help you make an informed decision.
At Capital Funding Mortgage, we believe mortgage shopping should involve more than asking:
“What is your rate?”
A better set of questions is:
What is the rate?
What does that rate cost?
What are the true lender fees?
Are there lender credits?
What is the monthly payment?
How long will I need to keep the loan to recover the upfront costs?
And which option makes the most sense for my situation?
Those are the questions that lead to a meaningful mortgage comparison.
If you have already received a Loan Estimate from a bank, mortgage company, online lender, credit union, or another mortgage broker, we would be happy to help you review it.
Contact John Madden at Capital Funding Mortgage and provide a copy of the Loan Estimate you would like compared.
We can help identify the rate, points, fees, lender credits, escrows, prepaids, monthly payment, and other important differences so you can make a more informed decision.
With more than 25 years of mortgage experience and access to multiple wholesale lenders, my goal is not simply to quote another rate.
It is to help you understand which mortgage provides the better overall value for you.
Capital Funding Mortgage
Have another lender’s Loan Estimate? Let’s compare the numbers before you decide.
What are your goals? We are committed to helping you reach them.
