Mortgage Brokers vs. Banks: Who Gets Your Business?

On November 9, 2014   /   Home Buying, Home Finance, Mortgage  
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mortgage

By: Angela Colley

When you’re looking for a mortgage, you can use a mortgage broker or deal directly with the bank.

Each choice has pros and cons, and depending on your personality, you’ll have to decide which is right for you.

Going it Alone

If you go it alone, you deal with the bank directly. If you’re a regular customer and have a great relationship with your bank, you might receive better terms and interest rates.

If you don’t have a good working relationship with a particular bank, you should shop around. Even if you do have a bank you’ve worked with, you should consider shopping around anyway—don’t trust your bank is automatically giving you the best deal.

Keep in mind that when you’re on your own, comparing rates and terms can be time consuming and complicated. You may not know how to compare mortgage products correctly or be savvy enough to slice through all the financial jargon.

Each bank typically offers just a few mortgage options, so in order to find the best one, you will have to research them each individually.

Pros of Using a Broker

Brokers are mortgage experts. They know the market, follow trends and know which institutions offer which mortgages products. They’ll also know which lenders are offering discounts or deals.

Importantly, brokers can save you time. A smart broker can identify the most appropriate lender for your specific circumstances and know which mortgages will be most appropriate. They also handle the hassle of paperwork and interaction with lenders, which can help relieve stress from the process.

This saving of time, work and stress is a big factor for many individuals who use a mortgage broker. Some brokers develop personal and professional relationships with lenders, which may accelerate the application process.

However, these relationships aren’t always a good thing.

Cons of Using a Broker

You may want to use caution if you pick a broker. Here are three reasons why.

1. Mortgage brokers aren’t free. Broker fees typically range between 1% and 2% of the mortgage. You also need to consider who pays the broker’s fee. While many mortgage brokers receive payment from the lender, some charge sizable fees to the borrower. This is especially true if there’s a situation involving credit issues or other financial hurdles.

2. A bad broker can favor lenders, not you. The deep relationships that some mortgage brokers develop with particular lenders can work against you. For example, a broker might steer you toward a lender with whom they have a long history—and not the one that offers the best terms. Likewise, if a broker is more concerned with netting the highest commission, they won’t have your best interests in mind.

3. They’re not all created equal. Mortgage brokers aren’t equally skilled and knowledgeable. Some brokers may not know of all the deals and options, which means you won’t get the best deal out there. To find the best broker in your area, ask around. Recent home buyers and a REALTOR® may be able to steer you toward a broker who can get you better rates.

Updated from an earlier version by Moshe Pollock.

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Think You’re Playing Mortgage Rate Roulette?

On October 19, 2014   /   Mortgage  
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mortgage

By: Michelle Lerner for Realtor.com

If you’re shopping for a home, you’ve probably already met with a lender and obtained a pre-approval letter based on your credit history, income and assets.

Hopefully, your lender also explained to you that mortgage rates fluctuate daily and from one loan program to another. If not, make sure you ask for an explanation of what changing interest rates can mean for your home loan and housing payments.

For example, if you plan to borrow $250,000 for your home purchase and want a 30-year fixed-rate loan, your monthly payments for principal and interest at 4% will be $1,194.

If your interest rate is 5%, your payments will rise by $148 to $1,342 per month. Even more importantly, you will pay an additional $53,465 in interest over the life of your loan at the higher rate.

While everyone wants to find the lowest mortgage rate, you need to understand the rate you’re quoted depends on whether you’re paying one or more discount points to bring down the rate. A discount point, equal to one percent of the loan amount, can bring down your interest rate by varying amounts.

When you compare mortgages, be certain that you’re being quoted an interest rate based on the same number of points—or zero points.

Why Mortgage Rates Change

Mortgage rates are heavily influenced by economic trends as well as supply and demand. When other interest rates are low, mortgage rates also tend to stay low, but they can fluctuate based on employment reports, consumer confidence and, in particular, investor activity in the bond markets.

Often, bad economic news will drive investors to purchase more bonds, which sends yields lower along with mortgage rates. The Federal Reserve’s decisions about interest rates also have an impact on mortgage rates.

When mortgage lenders are experiencing a period of low volume of mortgage applications, this also can send mortgage rates lower.

Try our mortgage calculator to check what your monthly payments would be, with different interest rates, for a given loan amount. Keeping up with weekly or even daily reports of trends in mortgage rates on the realtor.com® News blog can be helpful as well.

The rates you see online are typically reserved for those with the highest credit scores. Your individual mortgage rate will vary according to multiple factors.

Locking In Your Mortgage Rate

Your lender is the best source of advice about when to lock in your mortgage rate and what the fee is for the rate lock.

Typically, loan lock-ins are for 30 to 90 days. Technically, you can lock in your mortgage rate when you are approved for a loan, but very few buyers choose to do so—because it can be difficult to know how long it will take you to find a home and have your offer accepted.

Many borrowers choose to lock in the loan rate when they have a ratified contract, because at that time you’ll have a better feel for when the settlement will take place.

However, if mortgage rates appear to be rising quickly, you should discuss with your lender locking in a lower rate as soon as possible. Your lender can tell you what the fee is for the loan lock and what will happen if interest rates drop while your loan is locked.

Some lenders offer a “float-down” if rates decline during the lock-in period. If the lock expires before you close on your loan, you may be able to extend the lock or you will have to relock the loan at current mortgage rates.

When you’re shopping for a home, it’s best to stay aware of mortgage trends and in close touch with your lender.

Updated from an earlier version by Emmet Pierce.

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How to Pay Off Your Mortgage Before You Retire

On September 14, 2014   /   Lake Martin Real Estate, Mortgage  
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pay off mortgage before retiring

By: Michele Lerner for Realtor.com

For most of your life, preparing for retirement means investing. But as the actual date approaches, you also will need to streamline your budget so your expenses will be as low as possible. If a mortgage payment is your biggest monthly expense, as it is for most people, you might want to try to pay off your mortgage before you retire.

Loan balances for those borrowers also rose, with the median amount rising to $79,000 from $43,400 during those years after adjusting for inflation.

While not everyone can manage it, many older homeowners prefer to pay off their mortgage balance entirely before they retire.

Keep in mind that some expenses of homeownership won’t disappear: you still need to pay for homeowners insurance and property taxes—and if you live in a condo or a home within a homeowners association, you’ll need to keep paying your association dues.

However, eliminating the bulk of your payment, the mortgage principal and interest, can go a long way to smoother cash flow once you stop work.

Ways to Pay Off Your Mortgage

The best way to pay down your home loan depends on your loan terms, balance and budget. In particular, you need to consider your monthly budget and whether you can afford to make larger payments to reduce your mortgage balance.

It’s particularly important to think about how long you plan to keep your home and how far you are into your mortgage.

Refinance

If you’ve been paying off a 30-year fixed-rate loan for 15 or 20 years, you should think carefully about the advantages and disadvantages of refinancing.

In some cases, it’s a smart move to refinance into a shorter term loan of 10 years or even less, but be aware of the transaction fees and closing costs associated with a refinance—typically 2% to 3% of the loan amount. You may be better off applying those closing costs to extra payments on your current loan, especially if you’re near the payoff date.

Early in any home loan repayment you’re mostly paying interest, but by the last few years of your loan, you’re paying mostly principal. If you have refinanced before or bought your home within the last few years, refinancing into a shorter loan term could cause a big jump in your payments.

If you do opt to refinance into a shorter loan, be sure you can comfortably afford the higher payments and that you’ll recoup your costs quickly.

Prepay your loan

Refinancing locks you into a new payment plan, but if you’d rather have some flexibility, you can make extra payments to eliminate your mortgage faster.

You may want to add money to every payment, make an extra payment each year or even make a lump sum payment if you receive a tax refund or bonus.

Not only will you pay off your loan faster, but you’ll save thousands in interest payments.

For example, if you took out a $200,000 loan in 1999 at 4.5%, your principal and interest payments are about $836 per month—and your loan payoff date is 2029.

If you add $250 per month to your payment, you can eliminate your loan in 2025 and save about $13,630 in interest. If you can manage $500 more per month, you can save $21,300 in interest and be mortgage-free in 2023.

Put Mortgage Payoff Decisions in Context

It’s important to consider any decision about your home loan in the context of your other financial goals and commitments. Be sure you are contributing as much as you should to your retirement funds and eliminate non tax-deductible debt before you begin to pay down your mortgage.

Consult a lender and a financial planner to discuss your options on an individual basis.

This story was originally posted on SeniorHousingNet.

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