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Refi terms 1% orig fee but -1% discount pt?

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    Refi terms 1% orig fee but -1% discount pt?

    Does anyone understand why the terms of a refi would be written as follows?

    Interest rate is 4.75% locked, 30 year
    Origination fee is 1% (shown as a charge for the loan)
    Discount fee is -1% (then shown as a credit for the above charge)

    Closing costs will run slightly over 2K. The line by line shows that the origination fee and discount of -1% completely cancel each other so it would be 0pts, 0 origination. I just don't understand why it would be written this way, unless it is a way for someone to get paid?

    Quite frankly, this refi would serve us well. Recoupe of closing costs in just 9-10 mos. I guess I just want to know (if any one has any ideas) on why it was written this way.

    #2
    my 2 best guesses
    tax deduction/tax reasons *or*
    the person paying the cost might not be the same person receiving payment. For example maybe builder pays the cost for the lender.

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      #3
      Perhaps to ensure that you actually close on the loan? If you decide to change your mind and not settle, do you still have to pay the origination fee?

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        #4
        the money isn't coming and going to same place. the broker house is getting the orgination fee and the bank that is doing the loan is giving up the interest. even if mortgage broker works for the bank that is giving the loan, it isn't the same place because they are two different entities in accounting. and the broker generally gets paid out of the orgination fee.

        I would ask if you can pay a discount point and get an even lower rate.

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          #5
          If you don't mind my asking, what bank are you using?

          I'm considering a refi and that sounds like a pretty good deal.

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            #6
            That is through National City Mortgage. I locked in that rate the week of Dec. 15th and as you may know, rates have been fluctuating slightly the past couple weeks so I am not sure exactly where they stand on base rates of now.

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              #7
              I've been working with Wells Fargo, their rates dropped .50 today. They are at 4.875 w/ 1 pt on a 30 yr FR loan right now.

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                #8
                Origination cost (1%) is what the broker charged the borrower up front. Discount 1% is what the lender gives back the borrower so its a wash. Sometimes, the lender gives more than 1% just (by way of charging higher interest to the borrower) to keep the brokers happy and giving the lender/bank origination loans.
                Got debt?
                www.mo-moneyman.com

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