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Closing Costs

PAYING OFF YOUR MORTGAGE EARLY MAKES YOUR APR GO UP

The annual percentage rate, or APR, is the total cost of borrowing money over the full term of the loan, expressed as a yearly number.

You’ll find it on page 5 of the closing disclosure, with the proviso that “this is not your interest rate.”  The purpose of the APR is to make it easier for borrowers to compare mortgage offers (including closing costs) over the life of the loan.  It’s a more realistic comparison than interest rate alone.

Paying off a mortgage early will save money, but it will adversely affect the APR.

Here’s an example:

If you borrow $100,000 for 10 years at 4%, and you pay $100 in closing costs:

  • The $100 in closing costs, paid over 10 years is a 0.1% cost each year
  • Your APR will be 4.1%

If you pay off the loan in 5 years, the $100 in closing costs is spread over 5 years instead of 10:

  • The $100 in closing costs, paid over 5 years is a 0.2% cost each year
  • Your APR will be 4.2%

In this scenario, your total costs will be lower because you pay off the loan early, but resulting APR would go up.

A qualified closing attorney will be able to explain every calculation and every term and condition during the closing process.

Real estate agents who work mostly with buyers – especially first-time buyers – will enjoy working with a closing attorney who not only can explain but enjoys explaining everything at the closing table.

DO CLOSING ATTORNEYS CHARGE JUNK FEES?

Sadly, yes – some closing attorneys do add what we would consider “junk fees” to the costs of closing a real estate loan.

We worked with a client who was the seller in the transaction and used the closing attorney the buyer had stipulated in the sales contract. That attorney added a $250 charge to get tax liens released. While it’s true that occasionally the tax commissioner fails to release a lien when it’s been paid in full, all that’s required is a faxed-in request for release, and we take care of that as a part of our standard closing fee, at no extra charge.

Common “junk fees” you might see on the closing disclosure are wire fees, post-closing fees, document-handling or document-prep fees. Origin Title & Escrow performs all those tasks, but it’s included in the $450 settlement fee. Our total fee for title search and settlement is $750 for a refinance and $850 for a purchase. The only additional charge would be for title insurance.

The buyer picks the closing attorney and is typically the one who pays the closing costs. Real estate agents who work mostly with buyers – especially first-time buyers – will enjoy working with a closing attorney with a simple and transparent fee structure.

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