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What is Lender Credit? How does it help? What are disadvantages?

by mana25rd_326_159 from Los Angeles, California. Aug 22nd 2011 Reply

Deborah Garvin (loanmonarch)
#479 ranked lender in California - 53 contributions

A Lender Credit is derived from raising the interest rate from "par" pricing (zero point) to include "rebate pricing" in order to assist with the closing costs or prepaids on a loan. For instance, if a 100K loan had a "par" price at 4.25% and the client did not have adequate funds for closing costs, the mortgage professional may suggest taking a slightly higher interest rate of 4.75% with a (3.00) point rebate pricing...which would then allow the client to receive 3K of lender credit for their closing costs.There is nothing inherently good or bad with using lender credit; however, every situation should be review and analyzed independently so the consumer understand the benefits and the consequences over time (higher rate equates to higher payment and more interest paid over time.All things being equal, lender credit makes more sense for shorter term goals than for long term strategy. If you would like speciific answers to your situation please feel free to contact me.

Aug 22nd 2011
Joe Metzler (JoeMetzler)
#1 ranked lender in Minnesota - 3,670 contributions

The answer from LoanMonarch is a great answer... I would further add that this is all lender do when you hear any "No Lender Fee: or "No Closing Cost" loan options. There are closing costs associated with all loans. The question is how do you pay for them?

Aug 23rd 2011
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