If a lender’s costs to originate a $100,000 loan are $1,000 and they only charge the borrower $250 but the rate they charge is .25% higher than you would pay elsewhere, the lender will recoup the $750 of costs they paid in approximately 3 years ($100,000 x .25% x 3 = $750).
On a $300,000 loan they would recoup their costs in only one year! The borrower is paying the lender back through higher interest payments. On a $100,000, 30 year loan at 3.25% vs 3.0%, the borrower will pay $4,896.82 in additional interest over 30 years and most of that is in the early years.
In fact, over the first 5 years you will have paid $1,216.53 more in interest by choosing the loan with low closing costs! The higher the loan amount the higher the amount of additional interest will be.
