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How Do Mortgage Lender Credits Work?
Why would a lender offer to help pay your closing costs in exchange for a higher interest rate? Mortgage pricing gives buyers choices between upfront expenses and interest rates. Understanding where lender credits come from can help you make sense of those options.
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How can choosing a higher mortgage interest rate actually help pay your closing costs?
Think about a bank CD. Would you rather earn 6% or 7% interest? Obviously, you'd prefer 7%.
Mortgage investors think much the same way. They're generally willing to pay more for loans that earn higher interest rates.
That extra value can be passed along to you as a lender credit to help cover your closing costs.
And here's something important: There's not just one available mortgage rate. There are several. Higher rates may come with lender credits, while lower rates may require you to pay discount points.
And the cost or credit doesn't change evenly between rates, and the amounts change daily with market conditions.
So, this allows you to choose whether you want to pay more upfront or pay more over time through the interest rate.
And remember - it's always okay to ask. We're here to help you get home.