Finance Charges explained!

What’s a finance charge when getting a mortgage?

Finance charge is the cost of a mortgage in a dollar amount.  You can also refer to the finance charge as the price of the mortgage which includes interest, fee’s, third party charges and points.  The finance charge is used to calculate the APR.   For more or on APR check out my what is apr post.

To get an idea some of these fees include:

  • processing
  • underwriting
  • service fees
  • mortgage insurance
  • mortgage insurance fee premiums
  • origination fees
  • broker fees
  • insurance premiums that are tied to the loan
  • borrower-paid points
  • administrative fees
  • funding fees
  • charges from the mortgage broker (fees that are directly and indirectly paid)

To clarify compensation paid to the broker by the lender is not counted twice.  Also, there may be charges incurred that are not a part of the finance charge, like:

  • Application fees, if the loan is approved or denied.
  • actual unanticipated late payments;
  • charges for late payments;
  • charges for mortgage default;
  • seller’s points;
  • real estate fee’s interconnected with the transaction
    • title insurance
    • property survey
    • inspections
    • title examination
    • notary fees
    • appraisals that are done before closing
    • pest inspection fees
  • escrow account, if required to be paid in escrow, if they are not notably included in the finance charge
  • property insurance coverage
  • taxes and fee’s required by law, if disclosed;
  • insurance premium of perfecting a security interest

When refinancing, borrowers have the option of obtaining a mortgage with no closing costs. Find out more about no closing cost mortgages.