Finance Cost Per Thousand

Finance cost per thousand (CPM), often used in the context of mortgage lending and real estate, represents the cost associated with financing a property for every thousand dollars borrowed. It's a useful metric for comparing different loan options and assessing the overall affordability of a mortgage.

The formula for calculating finance cost per thousand is relatively straightforward. First, you need to determine the total finance charges associated with the loan. These charges include items like interest paid over the life of the loan, origination fees, discount points, mortgage insurance premiums (if applicable), and other fees related to securing the financing. Once you have the total finance charges, you divide that figure by the loan amount (in thousands of dollars).

For example, if you take out a $300,000 mortgage and the total finance charges over the life of the loan are projected to be $150,000, the calculation would be: $150,000 / 300 (since $300,000 is equal to 300 thousand dollars). This results in a finance cost per thousand of $500.

What does this $500 CPM tell you? It means that for every $1,000 you borrow, you'll ultimately pay $500 in financing costs over the loan term. This provides a standardized way to compare different loan offers, even if they have varying interest rates, fees, and loan terms. A lower CPM generally indicates a more favorable financing arrangement.

While CPM is a valuable tool, it's essential to consider it alongside other important factors when evaluating mortgage options. It doesn't tell the whole story on its own. For instance, a loan with a slightly higher CPM might offer more flexibility in terms of repayment options or have features that better suit your individual circumstances. Furthermore, CPM doesn't account for factors like property taxes, homeowners insurance, or potential changes in interest rates for adjustable-rate mortgages.

It's crucial to understand that the accuracy of the CPM calculation depends on the accuracy of the estimated finance charges. Lenders are legally obligated to provide borrowers with a Loan Estimate detailing all associated costs, including estimated finance charges. Carefully review this document and compare the CPM across different lenders to make an informed decision. Don't hesitate to ask lenders to clarify any aspects of the Loan Estimate that you don't understand.

In summary, finance cost per thousand is a helpful metric for comparing the cost of different mortgage financing options. It simplifies the comparison process by standardizing the cost per unit of borrowed capital. However, it's vital to consider it in conjunction with other factors, such as loan features, personal financial circumstances, and long-term financial goals, to choose the mortgage that best aligns with your needs.