Not all loan costs appear in the interest rate.
Some appear elsewhere on the Loan Estimate.
A borrower recently sent a Loan Estimate for a $620,000 purchase loan that appeared competitive at first glance. The interest rate was 6.75 percent with zero discount points.
But the origination section contained something unusual.
The lender had included an origination fee of $9,800.
Origination charges vary across the industry, but most fall somewhere between $995 and $2,500 depending on the loan structure.
An origination charge approaching $10,000 is rare.
We reviewed the loan to determine whether the borrower was receiving some compensating benefit such as lender credits or unusually low interest pricing.
That was not the case.
Wholesale lenders were offering similar borrowers rates between 6.5 and 6.625 percent with origination fees under $1,200.
After reconstructing the loan using wholesale pricing, the structure changed significantly.
Original quote:
Rate: 6.75 percent
Origination fee: $9,800
Rebuilt quote:
Rate: 6.625 percent
Origination fee: $995
The borrower saved more than $8,800 in upfront closing costs while also receiving a lower interest rate.
Cases like this illustrate why the Loan Estimate must be analyzed as a whole.
A competitive interest rate can sometimes conceal unusually high fees elsewhere in the loan.
The borrower ultimately moved forward with the rebuilt structure.