Mortgage Sources By Ben Afzal

There are a lot of choices – here’s some help in deciding how to do this

Mortgages are available from many different sources:

- large national banks
- specialty lenders
- online lenders
- mortgage brokers

Each of these options has its advantages and disadvantages.

Most mortgages used to be done by financial institutions. Because of down-sizing, many financial institutions are now happy to get their loans from mortgage brokers. This lets them cut down their full-time staffs. Mortgage brokers bring them loans that are fully prepared (application, supporting documentation), and the financial institution only does the loan if it makes sense. This keeps their overhead down, because they don’t have to pay an in house staff to do all the work a mortgage broker does for them. In a sense, the financial institutions have “outsourced” a huge portion of the mortgage industry to brokers.

Most financial institutions, although not all of them, work with mortgage brokers. This is their “wholesale” channel, and their offices where customers can come in and talk to them directly are their “retail” channels. They offer mortgage brokers “wholesale” rates that are generally lower than retail rates. The markup to retail rates can be part of the mortgage broker’s profit. In this way, mortgage brokers are able to offer comparable deals to the retail branches of financial institutions. From the lender’s perspective it doesn’t necessarily matter if the loan comes from an outside broker or a retail branch. Either way they still get it and make money on it.

Large Lenders

A large national mortgage lender will typically have a wide number of loans. Some of these types of loans are only available through their retail branches, and not through mortgage brokers. Most of the loan programs are the same between financial institutions and mortgage brokers.

Although they are names you are familiar with, and they are big companies, you don’t necessarily get a better deal from them. Some of them use their reputation, and the convenience of applying through a bank branch, to charge higher rates.

This author’s first mortgage application was with my retail bank. This major company wanted to charge me 2% more than the next competitor on my first home loan (before I was even in the business). Needless to say, they didn’t get the deal.

Specialty Lenders

Specialty lenders work on specific niches:

- great credit
- bad credit
- specific regions
- investor loans

They tend to do specialized types of loans that general lenders won’t do, or do as well. They may accept borrower loans with

- higher debt loads
- worse credit
- higher loan to value ratio on the property
- less seasoning of the property
- people with limited credit, such as only recently opening credit lines

Some of them focus on “A Paper” or great credit loans. Their rates can be better than others in this niche. Most of the niche players, however, focus on the lower end of the credit spectrum.

Online Lenders

Some lenders only offer their deals online. In theory this is supposed to simplify the mortgage process and pass on the savings to the customer.

Their rates are not necessarily lower. Again, they can trade on the fact that some of their customers won’t shop around because they think they got a deal on the internet.

Mortgage Brokers

Mortgage brokers work all different types of loans. Some specialize in specific areas, such as borrowers with lower credit or borrowers looking to buy rental properties.

They get their loans from other sources, such as big banks or specialty lenders. They take your application and loan documentation and in theory shop it around to multiple lenders for the best deal.

Comparing Mortgage Sources

The critical difference between the loan offers you receive is about fees you are offered. These vary not just by company but also by the people within them. You can talk to someone in a bank who is a real “high fee” kind of guy looking to maximize his profits on your loan, or you can work with a smaller guy who wants your repeat business over time so he charges you less.

You can get a terrible, fee gouging loan from the big bank you have used for years, and you can get a low fee loan from a specialty lender. It depends on your ability to shop and negotiate.

Lenders and mortgage brokers that specialize in lower credit borrowers often charge a higher amount of different fees.

Some loan sources may offer written guarantees which can be useful. These can include a written interest rate guarantee (a “rate lock”), or a promise to close your loan within 30 days or you get some kind of refund.

You can ask around with friends and family to see if someone works with a particularly good loan person. If you talk with them, let them know who you were referred by. If this loan officer wants to continue to do loans with people in your social network, they may be more inclined to offer lower fees overall so they can continue to get more business. They are less likely to jeopardize any future ongoing business with your social network by gouging you.

Resource: http://www.isnare.com/?aid=68270&ca=Finances

General Information On Private Mortgage Insurance By Tabitha Naylor

What is PMI?

PMI, or private mortgage insurance, is an insurance policy that home buyers are required to purchase if their down payment is low. It is usually required of home buyers whose down payment is 20 percent or less of the property’s sale price or appraised value. This insurance was created by private mortgage insurers to provide protection for the lender in the event that the home buyer should default on the loan.

Private mortgage insurance has helped millions of people purchase homes, since people are able to purchase homes with smaller down payments than had previously been accepted. As home prices continue to soar, the ability to purchase a home with a small down payment has become even more important. PMI allows potential homeowners to purchase homes sooner, with as low as a 5 percent down payment. Also, it can help an individual qualify for a variety of mortgages.

The cost of private mortgage insurance varies according to the down payment and mortgage loan, but it typically equals approximately one half of one percent of the total amount of the loan. So, how exactly is it calculated? Let’s assume you purchased a home for $100,000, and you put $10,000 as your down payment. Your lender will multiply the remaining 90 percent by .005 percent. The result, $450, is your insurance premium, which is divided into monthly payments.

After a few years of paying on your mortgage balance, you should be in a position to stop making payments towards the premium. Keep track of your payments and contact your lender when you reach 80 percent equity, so that the policy can be cancelled. In 1999, a new law, the Homeowner’s Protection Act, was passed. This act requires lenders to notify you, the buyer, how many months and years it will take to pay off twenty percent of your principal. It is still a good idea to keep track of it on your own, however.

This same law also allows lenders to force certain buyers continue their PMI payments, all the way to 50 percent equity. This requirement applies to buyers classified as high risk borrowers. Some Federal Housing Administration loans may even require that home buyers acquire private mortgage insurance through the lifetime of the loan.

If the idea of paying for this type of insurance for years sounds unappealing, you’re not alone. Over the years, new ways of avoiding these payments—even when you don’t have the 20 percent down payment available—have emerged. One strategy commonly employed is to pay a higher interest rate on your mortgage. Some lenders will waive the private mortgage insurance requirement if the home buyer agrees to pay a higher interest rate. One advantage to this strategy is that mortgage interest becomes tax deductible, where the insurance premium is not.

Another way to avoid paying PMI is by using the ’80-10-10’ loan strategy. This strategy involves taking on two loans and putting down a 10 percent down payment to purchase a home. One loan finances 80 percent of the mortgage, while the second loan finances the remaining 10 percent of the sales price. The second mortgage—the one that covers the 10 percent—has a higher interest rate. But since the amount of the loan is low, the interest charges are relatively easy to pay off. Under this plan, the mortgage interest is also tax deductible.

Thankfully, you may also be able to cancel your private mortgage insurance if you can prove that your home has increased significantly in value. If the value of your home has increased, you may already have 20 percent (or more) of the equity you need to cancel the policy. You can submit evidence of this to your lender, but the process is slow. Expect to wait up to two years for the lender to make a decision.

If you have a poor payment history, or if your credit record reflects any liens placed against your property, there is the possibility that your lender will continue to enforce your PMI insurance policy. You should speak to your lender to see how any changes in your credit record may affect the policy.

Resource: http://www.isnare.com/?aid=68067&ca=Finances

Ways To Pay Off Your Mortgage Quickly By Peter Kenny

If you have a mortgage, sometimes it can seem like you will be paying it off forever. However, if you budget correctly and cut down on some items, you can pay your mortgage back much more quickly and own your house outright. If you want to pay back your mortgage more quickly, then some of these tips could help you to do just that:

What type of mortgage to get?

If you are looking for a mortgage that you can pay off early in the future, then the best type of mortgage to go for is a flexible mortgage. If you get a fixed mortgage then there will often be charges for paying your mortgage back early. Getting a flexible mortgage will allow you to pay less when you need to and then overpay when you have the chance. Also, with flexible mortgages the interest is calculated daily so the more money you pay back then the lower your interest payments will be.

Advantages of paying back early

The obvious advantage of paying your mortgage off early is that you will own your house outright and so have no more mortgage or housing payments to make. This will free up a large proportion of your income to spend on other things, or to save for retirement. Also, the quicker you pay back your mortgage, the less money you will actually pay. A mortgage paid over a long period of time can mean you pay almost as much in interest as the loan amount itself. Paying the mortgage back quickly will save you thousands of pounds in interest payments. In today’s environment there is also no incentive to hang onto mortgage debt, as you can no longer gain tax relief on your mortgage.

Ways to pay back early

Obviously, paying back early involves overpaying on your mortgage. However, some mortgages have a minimum amount you can overpay by, which you might not be able to afford. If this is the case you should save for a number of months and then pay the amount in a large sum. It really can save you money paying back early. Paying back £100 a month extra on a £100,000 mortgage at 6% could save you nearly £30,000 in interest and you will pay the mortgage back six years earlier.

When you shouldn’t pay off early

Despite there being a lot of good reasons to pay your mortgage back early, there are also reasons why you shouldn’t. If you get charged large fees for overpayment, then paying back early might not be the best option. Also, if you have other debts at a higher rate, pay those back first before your mortgage as these debts are costing you more. There are also personal reasons why you might want to keep your mortgage, in that you might want to spend your money now whilst you are younger and enjoy yourself. You might also want to use the extra money you have for investments, which if you can cope with the risk might yield better financial results.

Paying off is better

For most people, the quicker you can pay off your mortgage the better. Although you might have to sacrifice a few luxuries, the money you can save is worth it. If your wage increases, instead of spending more each month you should use the extra money to pay off your mortgage.

Resource: http://www.isnare.com/?aid=75790&ca=Finances

Using a Mortgage Repayment Calculator Online By Gemma Stanbury

Understanding how your mortgage works is the key to getting it at the best available price. You know that what you will be paying will depend on the size of the mortgage, the number of years over which it is going to be repaid, and the interest rate applied. But how do all these factors interrelate and, if one changes, what happens to the other figures?

It is finding the answers to these fairly fundamental questions that makes a mortgage repayment calculator such an indispensable tool. Finding such a calculator is very simple – just key 'mortgage repayment calculator' into your internet search engine and you will be presented with a wide range of websites hosting an easy-to-use calculator. An especially neat and straight forward calculator appears on the money pages of the Guardian newspaper. Not only does this particular version distinguish between repayment and interest-only mortgages, but also lists the remaining mortgage balance you still owe after a given number of years, together with the amount of interest you will have paid by each year.

Using mortgage repayment calculators is simplicity itself. There will be one box in which you fill in the size of the mortgage you want to borrow. A second box will invite you to indicate the number of years over which the mortgage is to be repaid and a third box will ask for the applicable interest rate.

The resulting calculation will show you what the monthly repayments will be, the total sum of interest that you will need to pay over the term of the mortgage and (with most calculators) the balance outstanding on the mortgage over successive years.

The calculators are completely free to use, so can be experimented with as often as you like and until you are entirely comfortable with what information needs to be input and just what the results have to tell you.

There is something of a thrill in seeing the figures emerge so easily and quickly from the mortgage repayment calculator, since the sums involved are really quite complicated. With repayment mortgages, for example, they need to take into account that you will be paying interest on a diminishing outstanding mortgage balance, yet also that the interest payable needs to be 'compounded' (outstanding interest due needs to be added back to the diminishing balance of the principal, because you will in effect be paying interest on the interest). Payments on interest-only mortgages, of course, are a lot easier to calculate – involving the multiplication of the amount borrowed, by the number of years, by the interest paid.

The mortgage repayment calculator really comes into its own, of course, when you have some serious decisions to make about your mortgage. If it is your first, then you will want to know down to the last penny just how much the monthly repayments will be for the interest rate you are quoted. You may also probably want to compare the shorter- and longer-term costs of a repayment mortgage against an interest only mortgage. The calculator will help you compare the offers available from competing mortgage lenders. If you already have a mortgage, you might be interested in the effects of any rise or reduction in interest rate. Would a remortgage be a sensible offer? Again, the mortgage repayment calculator will be an indispensable tool in helping you decide.

Resource: http://www.isnare.com/?aid=296001&ca=Finances