Tuesday, February 16th, 2010 at
11:45 pm
Getting a good mortgage rate and terms at a reasonable cost can be tricky for the untrained consumer. I have been involved in the financing of real estate on two fronts, first as an appraiser who has appraised for lenders on over one 1000 mortgage loans and second as an investor who has applied for and refinanced over 100 loans in the past 15 years, so let me share some tips on how to get a good mortgage at the lowest possible cost. Visit my blog RealEstateInvestorsLife.com for more mortgage tips.
1. Know your credit report. One of the first things to do before considering a home purchase is to get a current copy of your credit report, and scrutinize it for errors. If you’re applying for a no-documentation loan, for example, the credit report can be the most important piece of information available to your lender. Errors can be completely erased, along with out-of-date information that might weaken your credit score, but it takes time. Begin working on this project well in advance of applying for any mortgage loan. This way, reporting agencies have time to update your data.
2. Shop around. Get quotes from 3 lenders. You may be able to save yourself hundreds or even thousands of dollars by avoiding mortgages with high rates and/or high fees.
3. Always check the 10 year bond rate. All mortgage rates are connected to the 10 year bond rate. This rate can be found at any finance or stock website, such as Yahoo Finance, Google Finance, Ameritrade, Fidelity and many more. For example, if your mortgage broker quotes you 6% on a 30 year fixed today and tomorrow the 10 year bond rate dropps by .025 basis points you can be sure that the rate of 6% which you received yesterday has also dropped. But your mortgage broker or lender will not call you. Why should they? They make more money in selling you the higher 6% rate. You will have to call yourself and notify your broker that the 10 year bond rate has dropped and you expect your 6% rate to also drop accordingly to probably 5.75%-5.875%. Trust me once you make this kind of call, your mortgage broker will know that you are on top of the game.
4. Try to avoid and eliminate the middle men, “mortgage brokers, loan broker” and go directly to direct lenders or banks. Private loan brokers rarely are able to compete with direct lenders or banks on rates and they often charge excessive 3rd party closing costs or “junk fees’, such as excessive processing fees, application fees, warehousing fees, documentation preparation fees and so forth. By going to a direct lender or a bank you can almost be certain that the closing costs related to your loan are always valid and no junk fees are applied.
5. Always haggle. A mortgage is just another consumer product. A few clever words can get a sweeter deal. Make your demands know upfront. Let them know that you would like to have your processing fees, which usually is about $330-$500 waived. Know your markets interest rate and try to pay the least amount of points. Try to pay less than 1 point on loan between $200,000-$1,000,000. On loans greater than 200,000 it is not uncommon to pay .075% points with no rebate at the back end. What is a rebate you ask? Mortgage brokers get an upfront fee called “points or Origination Fee” which is a percentage of your loan, but what most do not know is that mortgage brokers also get a back end fee, called a “rebate or yield spread” which is their markup over the par rate that they get from the source investor or lender, Assuming a 2 point markup, for example, the broker would quote 1 points on an 6.5% loan. If the current lender based par rate is 6% then you just paid the mortgage broker 1.5% total for your loan. The borrower pays for the rebate over time through the higher interest rate. By law in most states, such as California the mortgage broker must disclose the back end rebate fee to the consumer on the closing paperwork sent to the borrower, so check to see how much rebate or Yield Spread the broker is charging. The ideal situation would be 0 rebate and just negotiate on upfront points, this way you are certain you will receive the best available rate at the most reasonable cost, nothing is hidden or unknown.
6. Make sure your selected loan does not have a pre-payment penalty. Many people get what they consider a great loan and are not even aware that they have a prepayment penalty of 3-5 years. They find out when they try to refinance or sell off their existing loan that they would need to pay 6 months interest or more as a prepayment penalty. Lenders and Mortgage brokers also benefit in giving you a pre-payment penalty since they have you tied down with their loan product for 2-5 years not to mention higher compensation for them in a form of rebates if they can persuade you to get a loan with a pre-payment penalty. Do not fall for it. Never get a loan with a prepayment penalty.
7. Have the lender or broker write down all the costs associated with the loan, they usually are obligated by law to send you a “Good Faith Estimate” within 3 days of the initial loan application. All your fees have to be listed on the Good Faith Estimate, ask if the lender or broker will waive or reduce one or more of its fees or agree to a lower rate or fewer points. You’ll want to make sure that the lender or broker is not agreeing to lower one fee while raising another or to lower the rate while raising points. There’s no harm in asking lenders or brokers if they can give better terms than the original ones they quoted or than those you have found elsewhere.
Remember when buying or refinancing Real Estate, shop around to compare costs and terms, and to negotiate for the best deal. Your local newspaper and the Internet are good places to start shopping for a loan. You can usually find information both on interest rates and on points for several lenders. Since rates and points can change daily, you’ll want to check your newspaper often when shopping for a home loan. But the newspaper does not list the fees, so be sure to ask the lenders about them.
By: Hairloss Expert
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Tuesday, February 2nd, 2010 at
7:30 pm
The best rumors have the longest staying power, and the untruths about the connection between Bank of Canada interest rate cuts and mortgage rates is a prime example. Why? Well, though Bank of Canada interest rate cuts do affect the financial industry, they do not affect every segment of the financial sector; some segments are directly affected, others are only indirectly effected, and then there are segments that are directly or indirectly effected depending on the financial product. The mortgage industry falls into that third category.
Shocked? Well, you’re probably not alone. The idea that Bank of Canada discount rate changes cause mortgage rates to change is a common misconception that’s been perpetuated for years. So, let’s set the record straight!
TRUTH: When the Bank of Canada adjusts interest rates, it does affect interest rates of financial products. However, only interest rates for short-term financial products—things like car loans, credit cards, etc.—are directly affected by Bank of Canada interest rate cuts or hikes. Meanwhile, 10, 15, 30, and 40-year fixed mortgage loans are considered long-term financial products. As such, the Bank of Canada’s decisions do not directly influence fixed mortgage rates.
TRUTH: Though Bank of Canada rate cuts have no direct influence on fixed mortgage rates, the Bank of Canada’s decisions do directly sway one type of mortgage loan: Adjustable rate mortgages (ARM), which are also sometimes referred to as variable rate mortgages, IF the ARM is specifically stipulated as being tied to the prime rate.
TRUTH: Fixed mortgage rates are based on mortgage bonds (sometimes called mortgage securities), NOT the 10-year T-bill. Therefore, what actually has a direct effect on a mortgage rate increase or decrease is the buying and selling of mortgage bonds.
TRUTH: Though Bank of Canada rate changes do not have directly influence fixed mortgage rates, they can have a Domino Effect on fixed mortgage rates. How so? Well, the purpose of the Bank of Canada’s rate adjustments is often to increase or decrease consumer spending. For instance, when interest rates are cut, the goal is to increase consumer spending. As a result, investors speculating that the Bank of Canada’s tactic will work pull their money out of the bond markets (which are less volatile, low return investments) and put their money into stocks because they believe they can make greater profits from their investment. When this happens, that can cause mortgage rates to fluctuate. Remember: Mortgage bonds / mortgage securities affect mortgage rates. If money is cashed out from mortgage bonds, rates will increase. Conversely, if the monies are withdrawn from other types of bonds, mortgage rates may dip or they may remain unchanged.
So, what does all of that mean if you’re looking to modify or refinance your mortgage, or if you’re waiting for mortgage rates to change before you apply for a mortgage loan? First, it means that you should keep an ear out for what the Bank of Canada is doing regarding interest rate cuts and spikes ONLY if you’re interested in a variable rate mortgage—which would not be ideal for most consumers in the current economy. However, if you prefer a fixed rate mortgage, it means you can (and should) stop wasting your time tracking the 10-year T-bill and keeping tabs on the Bank of Canada. Instead, keep watch on what’s happening with mortgage bonds so you’ll know when mortgage rates are where you want them!
By: Andres Navarro
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Monday, February 1st, 2010 at
4:52 am
A mortgage broker acts as a wang who sources mortgage loans on behalf of individuals or businesses.A mortgage broker works as a conduit between the buyer and the lender, the loan officer typically works directly for the lender. Most states require the mortgage broker to be licensed. States regulate lending practice and licensing, but the rules vary. Most have a license for those who wish to be a “Broker Associate”, a “Brokerage Business”, and a “Direct Lender”.
Traditionally, banks and other lending institutions have distributed their own products. However as markets for mortgages have become more competitive, the role of the mortgage broker has become more popular. Today in most developed markets mortgage brokers are the largest distributors of mortgage products for lenders.
Tasks of mortgage broker
Banks’ activities can be divided into retail banking, dealing directly with individuals and small businesses; business banking, providing services to mid-market business; corporate banking, directed at large business entities; private banking, providing wealth management services to High Net Worth Individuals and families; and investment banking, relating to activities on the financial markets. Most banks are profit-making, private enterprises. However, some are owned by government, or are non-profits. Central banks are normally government owned banks, often charged with quasi-regulatory responsibilities, e.g. supervising commercial banks, or controlling the cash interest rate. They generally provide liquidity to the banking system and act as Lender of last resort in event of a crisis.
The nature and scope of a mortgage broker’s activities varies with jurisdiction. For example in the UK anyone offering mortgage brokerage is offering a regulated financial activity; the broker is responsible for ensuring the advice is appropriate for the borrowers’ circumstances and is held financially liable if the advice is later shown to be defective. In other jurisdictions the transaction undertaken by the broker may be limited to pointing the borrower in the direction of an appropriate lender and no advice given.
Therefore the work undertaken by the broker will depend on the depth of their service and liabilities.
Difference between a mortgage broker and a loan officer
A mortgage broker works as a conduit between the buyer and the lender, the loan officer typically works directly for the lender. Most states require the mortgage broker to be licensed. States regulate lending practice and licensing, but the rules vary. Most have a license for those who wish to be a “Broker Associate”, a “Brokerage Business”, and a “Direct Lender”.
A mortgage broker is normally registered with the state, and personally liable (punishable by revocation or prison) for fraud for the life of a loan. A loan officer works under the umbrella license of their current institution. Both positions have legal, moral, and professional responsibilities as well as liabilities to prevent fraud and fully disclose loan terms to both consumer and lender.
Typically, a mortgage broker will make more money per loan than a loan officer, but a loan officer can utilize the referral network available from the lending institution to sell more loans. There are mortgage brokers and loan officers at all levels of experience.
By: Tarun Jaswani
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