NRCC: Non Reoccurring closing costs. This means one time fees to get a mortgage, and not things like Taxes, Interim interest, Homeowners insurance.
Rate/Fee Blend: is the ratio of the combination of Loan Original Fees and Discount Fees and the note interest rate for those fees.
Discount Fees: Is an odd name in the industry for a fee you pay to a lender/investor to buy the rate down.
Buying Down the Rate: Ironically, few understand the borrower chooses the rate by selecting the best Rate/Fee Blend formula for their situation to best meet their objectives.
Proposal: A printed educational narrative from me (along with these sub-pages on my website) to support my verbal presentation that explains the advantages and disadvantages of refinancing your current mortgage. It gets you starting learning file configuration options. This is done by providing you will at least three different rate/fee blend quotes displayed on “Fees Sheets” which are all options the you showed an interest in, for which you choose one.
The first one will have a low interest rate with perhaps out of balance, high fees for the borrower to pay to get that lower note rate. This is not wrong to do but it will take a long time to break even. I often joke that by the time your net worth breaks even you will be so old you will not remember you have a mortgage. The second will be a middle of the road rate/fee blend. It is a balanced one, likely with a better rate than you have now with reasonable closing cost. Sometime I refer to this one as the “middle of the road quote” and regulators refer to it as the loan with the lowest interest rate without the risky features indicated in option box 2 on the Anti-Steering/Loan Options Disclosure.
When I say Reasonable closing cost , would result in a break even “so to speak” in about 24-30 months based on my values or my selection, if it was my loan. You can guide me to your values on this subject if different. So when you compare the NRCC’s with the monthly economic benefit of having refinance, by dividing one by the other you will see that your financial net worth will be restored in that time period.
The third one will be out of balanced the other way, with low fees and a higher rate than both of the other two. This configuration is sometimes results in no specific closing costs to be paid for by the borrower.
Commentary: When you are refinancing if you monthly payment drops by $390.00 per month that is one financial benefit with you receive in just thirty days not thirty months. However that is just part of the overall picture or story, which may have nothing to do with the financial net worth recovery that I talked about above. This will all be explained.
File Configuration: The formula that determines who pays for those closing cost. Everything has a Yin and Yang, meaning there is no free lunch. They are four configurations.
Transaction Structuring: Determines who has certain benefits and who takes certain risk.
Format: Controls who pays for the Mortgage Broker’s compensation. There are two Formats, that of “Lender Paid” and “Borrower Paid.” I do not want to misspeak but it seems I have been having greater customer acceptance of my proposals since I have been using “Lender Paid.”
The compliance rules are strictly enforced by law and regulations when using the “Lender Paid,” format, to the point of loosing flexibility to correct mistakes in quoting. For years before I always used “Borrower Paid” and whenever there was a misquote I would just eat it for customer relations. I will share an example, may not be the best one, I quoted $580.00 for an appraisal but there was a railing broken on the back porch that I never saw and this was a safety issue and had to be fixed, this caused the appraiser needing to go back out to inspect again and charged $110.00 for a five minute visit to take a photo and send me a form to certify the repair had been completed, so the appraisal at the end of the deal really cost $690.00. If my company was charging the borrower a loan origination fee I would essentially just give the customer a credit for $110.00 on the closing statement. So when I got my check the escrow would just reduce my net loan origination fee by the $110.00 and I still made a great living. Plus, I did not risk the client’s lock period expiring or Purchase and Sale Agreement not closing on time. But now with choosing “Lender Paid” I wound not have such an option to do that. The loan file would be suspended for re-disclosure would need to be prepaid and go out to the borrower to explain the new pricing the borrower will need to pay, and with explanations, then next a government waiting period a multiple days (up to seven days unless we use electronic re-disclosures online, then 3 days), will be imposed by rules to protect the public. This waiting period could cause you to have your locked rate expire or lose your earnest money when buying a home.
So when I seem like I am overkill on details and accuracy and slowing us down, in fact I may not be. If add 3 or 4 of these government waiting period together on a loan file locked for 45 days then a three day waiting period after signing a refinance of your residence in WA state, you will likely found yourself paying for a lock extension with any lender. This is way I am very careful and very thorough.