Mortgage fees: Mortgage rates, closing costs & pricing explained

Please note: Discover® Home Loans offers home equity loans and mortgage refinance opportunities but does not offer purchase mortgages or adjustable-rate mortgages (ARMs). 

No one likes surprise costs or hidden fees. That’s why you should know exactly what goes into the price of your home loan. This article outlines some of the costs you may have to pay.

Mortgage interest rates

Your mortgage interest rate will determine how much interest you’ll pay over the life of your mortgage loan. Mortgage interest rates may fluctuate based on a variety of factors, including the economy and inflation.

Interest rates for a mortgage may be fixed or adjustable:

• Fixed mortgage rates: These rates remain consistent throughout the entire loan term. Home loans with fixed interest rates may be an option for those who prefer a predictable monthly expense and don’t want to worry about potential rate fluctuations.
• Adjustable mortgage rates: With adjustable mortgage rates, also known as variable mortgage rates, you start off with an initial fixed rate for a specific period that’s less than the total term of the loan. After the initial fixed rate period, the rate adjusts according to market conditions. If interest rates go down, your mortgage payment may decrease. Conversely, if rates go up, your payment may increase, so you may want to be prepared for possible fluctuations with an adjustable-rate mortgage.

Understanding mortgage rates is an important factor when getting a home loan. Comparing rates across different lenders may help you find the best loan option for your financial future.

Mortgage closing costs

Within three business days of receiving your loan application, your lender must provide you with a loan estimate. This form gives you important information about the costs associated with your anticipated mortgage, including an estimate of your interest rate and mortgage payments.

Mortgage costs can generally be divided into two categories: the costs determined by the lender and the costs determined by third parties. 

Mortgage cost set by the lender

When comparing different home loans, you want to consider costs set by the lender.

Every lender has different loan programs and pricing, so it’s important to look at all costs, not just the quoted interest rate. This may help you decide which offer is best for you.

Here are some costs that may be determined by the lender:

• Mortgage interest rate: The mortgage interest rate is the cost of borrowing money to buy a home or refinance a mortgage. 
• Discount points: This is an upfront fee that you may be able to pay if you want to reduce the interest rate on your loan. You may only benefit from discount points if you keep your mortgage long enough for the savings from your reduced interest rate to outweigh the upfront fee. 
• Origination fee: This is a fee to typically cover the administrative tasks associated with processing a mortgage application, which may include pulling your credit report and verifying your financial information.
• Rate-lock fee: If you choose to lock in your interest rate beyond a certain period, you may be required to pay a fee.
• Other fees: Other fees controlled by lenders include document preparation, application, and underwriting fees.

Mortgage costs determined by third parties

Some other costs of taking out a mortgage can be outside your lender’s control. These costs may be established by your state or local government or set by vendors that provide a service. This category also includes taxes and insurance.

Here are some of these potential costs:

• Service charges: Several service providers may be required during a real estate transaction, including an appraiser to estimate the value of the home you are buying and an inspector to check the condition of the house. These providers typically charge fees.
• Title services: Title services typically consist of two costs:
  • A title search for determining the rightful ownership of the home you are buying
  • Title insurance, which protects your lender if unpaid liens on your home are discovered 
• Attorney’s fee: Some states require attorneys to attend or supervise the closing of real estate transactions, and if this is the case in your state, you may be required to pay an attorney’s fee.
• Government recording charges: These charges are for state and local government agencies to legally record your mortgage documents.
• Transfer taxes: Depending on where you live, your state, county, or city may charge a tax when the ownership of a home is transferred.
• Flood insurance: Flood insurance provided by a third-party insurer may be required by lenders if you buy a home in a high-risk flood zone.

Mortgages and annual percentage rates (APRs)

One other item to know about is the annual percentage rate (APR). It reflects the mortgage interest rate, discount points, and other charges associated with a mortgage, helping you figure out total borrowing costs. 

By looking at an APR, you can compare different mortgage products on the market. This may help you find a loan offer that’s best for your circumstances.