Overage is the positive difference between the price a loan officer charges a borrower and the priced posted by the lender to the officer.
It goes without saying that loan officer on the front line are constantly being updated with the prices of home loan that they are selling to consumers.
While they would already by making commissions on these standard rates, they would inevitably be remunerated with more commissions should they be able to convince a borrower to pay more than the posted rate.
This is an overage situation.
For example, a borrower might have chosen a regular mortgage with zero points. But the loan officer manages to sell his way to the borrower accepting 1 point on the deal.
This could be with the use of freebies or other marketing gimmicks.
Because closing fees in the form of points is an immediate revenue that the lender would book in, points tend to be push by the best sales people.
Compare this to higher interest rates which the lender would only reap the benefits from over the years. This is assuming the borrower don’t refinance the loan at all… which could be a long shot.
This is why we often see borrowers quoted with two sets of loans that trade-off between interest rates and points.
For example a mortgage at 6% with zero points versus one at 5.75% with 1 points.
You can bet that the mortgage broker is secretly wishing that the borrower would sign up for the option with points.
If we look at it at different angles, this is a very off situation that almost every party in the transaction wins.
The borrower would eventually get more savings as long as keep keeps the loan beyond the break even point, the officer get to bank in more commissions, the lender gets to drive up their revenue and even sell the loan on the secondary market.
However, there is also the possibility that the borrower was already sold a marked-up loan product in the first place.
The best thing a borrower can do to avoid being charged an overage is to be better informed of what’s going on in the market so that he knows whether his deal is a fair one.
The opposite of overage is underage.