Closing Costs, Points, and Assorted Fees

Closing Costs, Points, and Assorted Fees

Under the Real Estate Settlement Procedures Act (RESPA), lenders must provide loan applicants with a “Good-Faith Estimate” of their mortgage fees, within three business days of receiving a loan application. The Bureau of Consumer Credit Protection recommends that home buyers receive pre-application quotes from a variety of lenders in order to compare costs. Mortgage loans can feature charges ranging from less than $2,000 to over $10,000, and those fees vary according to the size of the loan, the customer’s credit history, and the lender’s fee structure.

Many lenders charge “points” for originating and/or closing a loan. One point equals 1% of the total amount borrowed:
Amount Borrowed = $100,000                                    1 point = $1,000,                                2 points = $2,000, etc.
* Points can be used to pay down the note rate on a mortgage. For example, some lenders may offer a note rate of 6% by paying 2 points, 5.75% by paying 3 points, etc.

As a general rule, the longer you plan on owning your new home, the better off you are “buying down” a lower interest rate by paying points. On the other hand, if you are only planning to stay in your home for a couple of years, it may be best to forego the “buy down” by paying points, and settling for a slightly higher note rate.

CAUTION! Some lenders/loan brokers only charge points as a means of enhancing their profits through fee income! Homebuyers will also pay a variety of other charges including: title search, credit report, application and appraisal fees. Shop around and compare rates!




A number of mortgages (fixed-rate only) feature prepayment penalties, which are fees assessed by the lender (usually a percentage of the loan amount) if the loan is fully repaid within a certain time period (generally during the loan’s first 1-3 years).  These penalties can be substantial, often in the thousands of dollars. When mortgage comparison-shopping, ask the lender “up-front” if they charge this penalty.  Check again at the closing to make sure the terms haven’t changed. Carefully read and understand all closing documents before signing them! Lenders regulated by our agency and the Maine Bureau of Financial Institutions may not assess prepayment penalties on adjustable rate (ARM) mortgages. One Mainer who didn’t know her mortgage contained such a clause was within several weeks of the expiration of her fixed-rate mortgage’s pre-payment penalty period.  She was legally assessed a penalty fee of several thousands dollars as a result of her ill-timed mortgage refinance.

Second Mortgages and Home Equity Lines of Credit (HELOCs)
It is becoming increasingly common for consumers to utilize the equity that they have accumulated in their homes to pay for college tuition, consolidating credit cards, or making home improvements. A traditional second mortgage provides a one-time lump sum of money (loan proceeds) paid back on an installment basis for 5-10 years. Unlike a traditional second mortgage, a home equity line of credit (HELOC) is a revolving loan without a fixed payment term. HELOCs feature a line of credit with an established credit limit. Some consumers like the borrowing flexibility offered by HELOCs, and also enjoy the feature that interest assessed (finance charge) is generally tax deductible (check with a tax expert). One potential disadvantage of HELOCs is that they are generally a variable interest rate loan, so monthly payments can vary (go up or down) in an unpredictable manner.

Second Mortgage/HELOC Advisory

Be financially prudent when considering a second mortgage loan secured by your “home sweet home.”  The failure to make timely payments on this debt can result in a home foreclosure.  Think twice before you commit to this sizeable new debt.  Borrowers who “close” (sign loan papers) on a second mortgage must be given a “three day right of rescission” to change their mind and cancel the loan contract.

A Few Words on Predatory Mortgage Lending from the Superintendent of the Bureau of Consumer Credit Protection:

Especially in recent years, state regulators have seen many cases of what could be termed "predatory mortgage lending."  Generally speaking, this refers to a situation in which a lender or loan broker takes unfair advantage of a consumer by charging excessive fees, or by convincing the consumer to take out a mortgage that has disadvantageous terms (such as large prepayment penalties or balloon payments), especially when the consumer would qualify for a less-expensive loan.

Maine consumers have complained that they were given one set of loan terms when they applied for a loan, but when it came time to close, the loan had new, unexpected and expensive features. They tell us that they did not learn about expensive loan terms until they reviewed the paperwork months later.  They additionally explain that loan officers misled them by telling them that 1) they would be able to refinance later to get out of expensive loan terms; or 2) they were not subject to prepayment penalties when in fact their loan contained such features.

− William N. Lund, Superintendent

If you would like to learn more about predatory lending and how to avoid it, please visit the Bureau of Consumer Credit Protection’s website at: www.Credit.Maine.gov, or call our office at: 1-800-332-8529.

Reverse Mortgages

Unlike a traditional mortgage in which the borrower makes payments to a lender each month, a reverse mortgage allows homeowners to receive payments from a lending company, thereby drawing equity from their home. Unlike purchase money mortgages, reverse mortgages allow consumers with a substantial amount of equity in their homes to receive regular monthly checks from a lender. Reverse mortgages are primarily utilized by consumers (62 years of age or older) who wish to stay in their homes, but may lack the financial resources to do so. Reverse mortgages can be used to pay property taxes, fund needed home maintenance projects, or to help homeowners maintain a healthy, desirable lifestyle. For more information about reverse mortgages, contact:

•    The Federal Trade Commission at 1-877-FTC-HELP (382-4357)        
      or
•    The US Department of Housing and Urban Development at 1-800-CALL-FHA (2255-342)

Consumers may order free booklets from these agencies, and they must obtain financial counseling prior to obtaining a reverse mortgage.