Home Loan Guidance Topics

High-Level Overview of Home Loan Costs


There are three levers that add to home loan costs. The way to save money, to save A LOT of money, is to target all three levers, not just one.



First, there are upfront costs for getting a home loan. Home loans are also called mortgage loans because you "mortgage" your home to use it as collateral to get the home loan. If you don't pay back the loan, the lender has the legal right to take the home through the mortgage. (The terms "home loan" and "mortgage loan" are often used interchangeably.) Upfront fees can include discount fees, origination fees, "points," payments of various kinds to the mortgage broker, and many, many others. Once these upfront costs are paid, there is no getting them back. See "A" in the diagram.

The second lever for home loan costs represents those that you pay throughout the life of the loan. There are two main types of costs, the most popular one, interest expense, and a second, for many people, called mortgage insurance. These represent payments you make over the life of the loan in exchange for having been given the money to buy your new home. See "B" in the diagram above.

The last lever is sort of an "anti-cost" but it has a very real impact on the total cost of getting a home loan. This is the amount of interest and mortgage insurance that you can save through future refinancings and other means after you buy your home. Make no mistake - the ability to refinance your home loan at some point in the future can be key to saving a lot of money. Proper refinancing can save you thousands of dollars, long after you have moved into your new home. See "C" in the diagram.

These levers add up to the total cost of your home loan. See "D" above. These costs ARE NOT independent. Meaning, your ability to reduce one of these costs may dramatically increase the cost of another. So, the proper thing to do is find the right balance across all three levers. The Equal Home Finance Bureau has collected and analyzed many, many ways for you to save money, centered around this simple formula shown above.

There are other costs associated with home ownership, such as real estate taxes and ongoing maintenance, but this Guide focuses on home loan costs specifically when you are preparing to purchase your home.

Five General Tips to Save | Equal Home Finance Articles | Consumers Helping Consumers | Equal Home Finance ALERTS! | About the Equal Home Finance Bureau | Contact Us

Copyright © 2001 EQUAL HOME FINANCE BUREAU • Contact Webmaster