Provided By Realty Times
Experience is a good teacher, but when it comes to mortgages—whether you're arranging a new one or renewing—learning by experience can be expensive.
The more you understand about mortgages and home equity lines of credit (HELOC) before you sign a mortgage contract, the more you can save in interest charges, lender fees, and other borrowing costs.
1. Consider the Source:
The internet is a great research tool, but separating unbiased facts from marketing and misinformation can be tricky.
Often we are most vulnerable when we are intent on learning about something important to us. Our guard is down. Be cautious about which content you act on, and where you share personal information. According to the recent 2011 Mortgage Consumer Survey, released by the national housing agency, Canada Mortgage and Housing Corporation (CMHC), the internet provided recent real estate buyers with on-line mortgage calculators (86%) and financial self assessments (54%). The most popular search-engine key words used by buyers included interest rates (86%), mortgage options (76%) and mortgage calculators (69%). This CMHC survey, and consumer information like it, is equally accessible to legitimate and not-so legitimate companies developing and selling financial services and products. Taking time to research and understand mortgage details is important, just remain sceptical of special deals and too-good-to-be-true offers. Print information you want to act on as proof of what a company is offering, so you can hold them to it.
Resource: CMHC provides free online tools, such as the Household Budget and Mortgage Affordability Calculators, and publications, such as Homebuying Step-by-Step: http://www.cmhc.ca.
2. What's In It for Them?
Real estate and mortgage professionals, and the organizations they represent, may be offered referral fees—as money or incentive points—by lenders that want their business (that's your mortgage).
Professionals should disclose (ideally, in writing) the conflict of interest before you make any decisions or sign anything. Can you receive the best interest rate and mortgage terms when the professional is distracted by an additional incentive?
Ask whether there is a referral fee or incentive involved in all "I've got a great …" recommendations you receive. Be sure you, not the professional, are getting the best deal. For instance, being led to a bank does not give you the range of mortgage choices that a referral to an independent mortgage broker would. Thorough professionals normally offer at least three excellent choices when referring clients to ensure consumers understand the full spectrum of choices open to them.
3. Will Match to Get Your Business
Most people shop around for the best price on appliances, cars, and vacations, but do little comparison shopping for the best mortgage terms. If they did, it could save tens of thousands, or more. Remember, it's not just the interest rate but the total borrowing cost that you want the best deal on.
Use a mortgage broker for comparison shopping, and you'll have the added benefit of their track record with lenders. Since the broker represents more volume than your one mortgage, you may get an even better deal.
One lender advertising a terrific rate or a line of credit feature will not be the only lender ready to provide that service. Just ask, and you may get that feature plus added benefits with a lender you prefer.
4. What Is the Real Cost?
It's not just the interest, but the total cost of borrowing that is vital to understand. What will it cost you to pay off the principal early? What is the charge to set up weekly or biweekly payments? What if you have to switch back to monthly? What is the cost for shifting from variable to fixed? What is the total cost of discharging the mortgage if you sell your real estate? When will legal fees be added? Will cash backs have to be repaid? Ask about all situations since this mortgage will run for decades. Get all the details about cost before you sign.
The long-term implications of your mortgage are more important than a quarter-point difference in interest rate. For instance, should you choose a fixed rate or variable? If you cannot afford to be wrong about this choice, go fixed and pay off principal as quickly as possible. If you have a financial cushion, solid job, and little consumer debt, a variable mortgage may save you money. The risk is worth it since, if rates rise quickly, you'll be able to cover additional expense.
Banks and other lenders do not make billions in profit by missing opportunities to charge fees and take bonuses (that's penalties to you). They can also change their policies and offerings anytime they like.
5. Rates Up, Mortgage Size Down
As interest rates go up, the size of mortgage you qualify for goes down. Even if you are prepared to take on significant debt, you won't be allowed to. With buying power reduced, you may have to settle for a smaller property or a lesser neighbourhood.
When interest rates are on the rise, a preapproval can make a financial difference to buying power. The borrower is approved at a rate that the lender commits to for a period of 60, 90, or more days, even if rates for the same term go higher.
Some lenders include heating and utility costs in calculating what a borrower can afford. This means properties with poor insulation and higher heating costs may only qualify for lower mortgages.
6. Who Knows???
Since most buyers, on average, spend almost a year planning their home or condominium purchase, they are often exposed to a few market and rate changes in the process. There are lots of economists projecting and calculating interest rate patterns, but no one knows what will happen next. It is probable that rates will rise, but when and how fast is anyone's guess.
According to Mark Carney, Governor of the Bank of Canada: "With monetary policy continuing to be set to achieve the inflation target [2%], our institutions should not be lulled into a false sense of security by current low rates. Similarly, households will need to be prudent in their borrowing, recognising that over the life of a mortgage, interest rates will often be much higher."
Resource: When will interest rates go up and by how much? Go to the source—the Bank of Canada. The link to a recent plain-language speech by BC Governor Carney explains what's happened and happening in housing, but even he does not know what exactly will trigger rate changes, and when.
7. Buying Day Is the Big Unknown
How many houses, semis, or condominiums must you view to find the one you want to buy? When will you be able to make an offer and have it presented? Will the offer be accepted? Your new home may be the first or the 15th you see. It may be the first one you make an offer on, or the 5th. Not even the most experienced lender, mortgage broker, or real estate professional can predict how quickly you'll find and buy your home. But they'll all agree that doing your mortgage homework first gives you the flexibility to act quickly when the ideal home appears. Don't get left with "if only I'd..." regrets, or be stuck with an unnecessarily-expensive mortgage.
Need more answers to your loan questions? Give us a call at 972.772.7029 or email us at frontdesk552@kw.com.
Showing posts with label mortgage lenders. Show all posts
Showing posts with label mortgage lenders. Show all posts
Friday, July 22, 2011
Wednesday, May 18, 2011
Conventional versus government mortgages
Provided By Trulia.com
It is the most feared phrase in the English language, Ronald Reagan famously said:
"We're from the government, and we're here to help."
If government aid is evil, there are certainly some exceptions. Home mortgages insured by the Federal Housing Administration have helped put more than 34 million Americans into their own homes since the since the 1930s. Millions more have benefited from zero-down VA loans from the U.S. Department of Veterans Affairs and from the Department of Agricultures Rural Development loans. Mortgage guarantees and down payment assistance are also doled out by municipalities and state programs such as California's Housing Finance Agency.
It's hard to generalize about their pros and cons with so many government-enabled loans out there. But when we compare them to conventional (non-government) loans, a few observations arise.
FHA loans normally demand higher interest rates than conventional mortgages because of the increased risk of default. The "spread" between FHA and conventional loans can be as high as a point, or 1 percent, which is a lot. Borrow $200,000 for 30 years at 5 percent fixed and you'll pay $1,073 monthly. Make it 6 percent and you'll pay $1,199. It's an extra $45,360 over 30 years.
Why have so many buyers chosen FHA loans? Not because they like higher interest. It's about lower down payments. An FHA-backed loan today can be had for about 3% percent down, even by someone without stellar credit. The same borrower might be asked for 20 percent down by a lender without the FHA guarantee.
But there are complicating factors. FHA borrowers must pay an upfront fee of 1.5 percent of the loan amount, plus an annual insurance premium of 0.5 percent. That premium is about the same as what's paid by a conventional borrower who must carry Private Mortgage Insurance (PMI).
A higher-interest-rate FHA mortgage may cost less in the long run than a conventional mortgage with PMI, but there is no overarching rule. You have to run the numbers and compare. For many borrowers, the deal "maker" or "breaker" won't be the interest rates or monthly payments. For many, with conventional lenders now demanding 10 or 20 percent down, it's all about down payments.
In theory, it's possible to avoid PMI with a piggyback mortgage structure - by borrowing 80 percent of the property value in one loan and 10 percent on a second for example. (This trick was common in the loose-lending days of old but today (in 2009), it's much harder to find second-position lenders at loan-to-value ratios like these.
Two other brands of government-guaranteed loans are offered by federal agencies. The Department of Veterans Affairs will insure zero-down, 100 percent financing as a benefit to military veterans (even if they served in peacetime). The interest rates are similar to FHA loans.
Zero-down financing is also backed by the U.S. Department of Agriculture under its Rural Development program. The audience for RD loans is limited. They're intended to help low-income people buy, build or renovate homes in rural areas. Houses must be modest in size, design and cost, according to the agency. The interest rates are similar to FHA and VA loans, combined with 100 percent financing. Great terms for the needs of many people if they qualify.
Do you have mortgage questions? Call the experts at 972-772-7000 or email us at frontdesk552@kw.com.
It is the most feared phrase in the English language, Ronald Reagan famously said:
"We're from the government, and we're here to help."
If government aid is evil, there are certainly some exceptions. Home mortgages insured by the Federal Housing Administration have helped put more than 34 million Americans into their own homes since the since the 1930s. Millions more have benefited from zero-down VA loans from the U.S. Department of Veterans Affairs and from the Department of Agricultures Rural Development loans. Mortgage guarantees and down payment assistance are also doled out by municipalities and state programs such as California's Housing Finance Agency.
It's hard to generalize about their pros and cons with so many government-enabled loans out there. But when we compare them to conventional (non-government) loans, a few observations arise.
FHA loans normally demand higher interest rates than conventional mortgages because of the increased risk of default. The "spread" between FHA and conventional loans can be as high as a point, or 1 percent, which is a lot. Borrow $200,000 for 30 years at 5 percent fixed and you'll pay $1,073 monthly. Make it 6 percent and you'll pay $1,199. It's an extra $45,360 over 30 years.
Why have so many buyers chosen FHA loans? Not because they like higher interest. It's about lower down payments. An FHA-backed loan today can be had for about 3% percent down, even by someone without stellar credit. The same borrower might be asked for 20 percent down by a lender without the FHA guarantee.
But there are complicating factors. FHA borrowers must pay an upfront fee of 1.5 percent of the loan amount, plus an annual insurance premium of 0.5 percent. That premium is about the same as what's paid by a conventional borrower who must carry Private Mortgage Insurance (PMI).
A higher-interest-rate FHA mortgage may cost less in the long run than a conventional mortgage with PMI, but there is no overarching rule. You have to run the numbers and compare. For many borrowers, the deal "maker" or "breaker" won't be the interest rates or monthly payments. For many, with conventional lenders now demanding 10 or 20 percent down, it's all about down payments.
In theory, it's possible to avoid PMI with a piggyback mortgage structure - by borrowing 80 percent of the property value in one loan and 10 percent on a second for example. (This trick was common in the loose-lending days of old but today (in 2009), it's much harder to find second-position lenders at loan-to-value ratios like these.
Two other brands of government-guaranteed loans are offered by federal agencies. The Department of Veterans Affairs will insure zero-down, 100 percent financing as a benefit to military veterans (even if they served in peacetime). The interest rates are similar to FHA loans.
Zero-down financing is also backed by the U.S. Department of Agriculture under its Rural Development program. The audience for RD loans is limited. They're intended to help low-income people buy, build or renovate homes in rural areas. Houses must be modest in size, design and cost, according to the agency. The interest rates are similar to FHA and VA loans, combined with 100 percent financing. Great terms for the needs of many people if they qualify.
Do you have mortgage questions? Call the experts at 972-772-7000 or email us at frontdesk552@kw.com.
Friday, May 13, 2011
Four questions to ask before choosing a mortgage broker
Provided By Trulia
Mortgage brokers are engaged in the business of finding you the best home loan. Their true clients are the lenders, and their real "job" is to deliver good, creditworthy borrowers like you.
Mortgage brokers have encountered a formidable competitor in the past decade or so, called the Internet. Borrowers can compare loans through sites like Trulia Mortgage, eloan.com and LendingTree.com. Fill out a credit application and receive several offers. When banks compete, as the slogan says, you win.
That's a good way not only to pit lender against lender (a subject for another chapter), it's also useful keep your broker honest as well. Your job is to monitor the market. Why? Because loan rates change daily. A broker acting in sheer self-interest could bait you with one rate (possibly lower than reality), knowing you can't "lock" that rate until you complete the full application process. It's always a good practice to be skeptical and do you homework.
Why haven't I seen a rate like this elsewhere?
Ask this question only after having done some homework. A similar scenario would be a broker who advertises rates below market to get you in the door, and then lists all the fees necessary to make that rate possible — even including lofty origination fees.
What are the fees and costs associated with the interest rate you've quoted?
(Above-the-board brokers welcome questions like this.)
Fees take many forms. There are charges for your credit report, appraisal, title insurance, deed-recording, overnight deliveries, etc. For a rate quote to meaningful, it should be accompanied by a list of all related fees and costs.
Your broker must supply a Good Faith Estimate of all charges before the closing. The estimated figures aren't set in stone because "third party" costs such as title insurance premiums can change. But it's possible to know the total tab, or a figure pretty close to it, several days in advance.
Ads and other promises aside, you don't really know what you'll be paying until your rate is "locked". Brokers have been known to game this process. For example, a broker might say your rate is locked when it's not, and if rates go down before closing, he could sell you the higher rate you agreed to and pocket the difference. A broker who plays this game and loses (because rates go up) could tell you that your rate wasn't really locked — it was a misunderstanding.
If your rate truly is locked, your broker will have proof of it. Hence this line of inquiry:
May I see the lenders commitment letter that shows my rate is locked in?
Many states have started licensing brokers. This is a positive development, with potential to weed out the few bad apples remaining in the business. In the past, going into business took nothing more than a web site and a shingle. Licensing requirements will prevent scams. Still, one very basic question is always in order:
How long have you been in business?
Longevity is important--time and nature have a way of separating the wheat from the chaff. With the array of available mortgage products more complex than ever, experience is important too. Look for at least five years in the business. With that as a minimum, your broker will have seen good times as well as bad.
Are you ready to buy but need a great mortgage lender? Give us a call at 972.772.7000 or email us at frontdesk552@kw.com.
Mortgage brokers are engaged in the business of finding you the best home loan. Their true clients are the lenders, and their real "job" is to deliver good, creditworthy borrowers like you.
Mortgage brokers have encountered a formidable competitor in the past decade or so, called the Internet. Borrowers can compare loans through sites like Trulia Mortgage, eloan.com and LendingTree.com. Fill out a credit application and receive several offers. When banks compete, as the slogan says, you win.
That's a good way not only to pit lender against lender (a subject for another chapter), it's also useful keep your broker honest as well. Your job is to monitor the market. Why? Because loan rates change daily. A broker acting in sheer self-interest could bait you with one rate (possibly lower than reality), knowing you can't "lock" that rate until you complete the full application process. It's always a good practice to be skeptical and do you homework.
Why haven't I seen a rate like this elsewhere?
Ask this question only after having done some homework. A similar scenario would be a broker who advertises rates below market to get you in the door, and then lists all the fees necessary to make that rate possible — even including lofty origination fees.
What are the fees and costs associated with the interest rate you've quoted?
(Above-the-board brokers welcome questions like this.)
Fees take many forms. There are charges for your credit report, appraisal, title insurance, deed-recording, overnight deliveries, etc. For a rate quote to meaningful, it should be accompanied by a list of all related fees and costs.
Your broker must supply a Good Faith Estimate of all charges before the closing. The estimated figures aren't set in stone because "third party" costs such as title insurance premiums can change. But it's possible to know the total tab, or a figure pretty close to it, several days in advance.
Ads and other promises aside, you don't really know what you'll be paying until your rate is "locked". Brokers have been known to game this process. For example, a broker might say your rate is locked when it's not, and if rates go down before closing, he could sell you the higher rate you agreed to and pocket the difference. A broker who plays this game and loses (because rates go up) could tell you that your rate wasn't really locked — it was a misunderstanding.
If your rate truly is locked, your broker will have proof of it. Hence this line of inquiry:
May I see the lenders commitment letter that shows my rate is locked in?
Many states have started licensing brokers. This is a positive development, with potential to weed out the few bad apples remaining in the business. In the past, going into business took nothing more than a web site and a shingle. Licensing requirements will prevent scams. Still, one very basic question is always in order:
How long have you been in business?
Longevity is important--time and nature have a way of separating the wheat from the chaff. With the array of available mortgage products more complex than ever, experience is important too. Look for at least five years in the business. With that as a minimum, your broker will have seen good times as well as bad.
Are you ready to buy but need a great mortgage lender? Give us a call at 972.772.7000 or email us at frontdesk552@kw.com.
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