Ten Questions to Establish a Mortgage Loan Broker Has the Refinance Mortgage Broker Service for You

1. What array of lenders do you as a Mortgage Loan Broker have on your lending panel?

Make sure that the broker you are dealing with is a Mortgage Loan Broker or Mortgage Planner who has access to a variety of lending institutions as opposed to a Mortgage Representative who only represents one lender and that lender’s range of products.

2. What is the best type of Home Loan that would suit my cashflow cycle and finance structure?

Make sure that the Refinance Mortgage Broker or Mortgage Planner demonstrates how the specific type of home loan will sustain your finance structure and maximise the use of your cashflow. It is vital that the method in which the loan payments are required to be made doesn’t limit the effective usage of your cashflow in minimising the amount of home loan interest payable.

3. Is it best to concentrate on the mortgage products with the cheapest mortgage interest charge?

If the response is an explicit yes, inquire as to why and move forward with caution! There is nothing wrong with cheap home loan interest rates provided the lending institution displays a track record of cheap interest rates and established funding! Mortgage products that appear to give a great deal may include high penalties, charges and costs, or may not offer the versatility of usage that you call for in the future. To prevent selecting a loan you could later regret, treat with caution a recommendation centred mainly on cheap interest charges.

4. What are the best home loan products to suit my direct circumstances and objectives, and how will they support any future plans I may have?

Make sure the Mortgage Loan Brokers proposal consists of no less than 3 home loan products that display fair comparisons among the products. Beware of a comparison that includes 1 product that seems to be far better than the other 2! Look for product features and product versatility that will permit you to amend the home loan product to meet your future ambitions and plans.

5. Aside from the fees and charges associated with the new home loan, what further fees and charges am I likely to incur?

Finance Institutions, Service Providers and Government Departments often charge costs connected with the financing procedure and often they may be a pricey surprise for the unwary. A valuable Mortgage Loan Broker or Mortgage Planner will provide you with a Loan Costing Sheet itemising all costs, charges & fees associated with the anticipated home loan procedure.

6. How do you get remunerated and what is your commission arrangement?

Asking for an explanation in writing of how your service provider gets paid for their act will assist recognize and reduce conflicts of interest. If the suggested Lender’s commission is by far the uppermost remuneration of all credit providers on the broker’s lender panel, proceed with caution as this may stand for a conflict of interest.

7. Do you provide your potential customers with a Mortgage Broking Agreement?

Not every Refinance Mortgage Brokers service is precise in what it will deliver as opposed to what it is that you want as a final product. Hence it is highly recommended that a Mortgage Broking Agreement be drawn up among the parties outlining the scope of services/products to be offered and payments associated with the work.

8. Do you perform FREE Yearly Reviews and what extra services do you give?

Discover how eager the broker is to remain in contact with you and confirm that your loan is satisfactorily ongoing meeting with your goals. What extra services does he or she give either directly or via referral that might possibly be of benefit to you and are there savings on hand if you bundle these services with that of the mortgage?

9. Where may I turn if we have a disagreement that cannot be sorted out?

Do you offer an External Dispute Resolution Service (EDRS)? Request the service provider to clarify the complaints process offered by their business, outlining who you might complain to and which EDRS they are a member of? A worthwhile Refinance Mortgage Broker will provide you with a personalised Financial Services Guide at initial meeting that will outline all the particulars of their complaints process as will their Mortgage Broking Contract.

10. Are you an MFAA certified Mortgage Loan Broker?

By dealing with a broker who is a certified MFAA member, you are doing business with a person that has fulfilled minimum standards of education, experience and ethics to sustain their membership status.

The Shopping for a Mortgage Rate Game

I have been advising borrowers who need residential mortgage financing for over seventeen years. My experience shows that no matter how sharp, intelligent, smart, educated, or ignorant a borrower is — the mortgage rate trap that they all fall into is the same. Unfortunately, by the time a borrower realizes that they have been misinformed, mislead, or just been given only part of the mortgage rate story; their inept, inexperienced, unknowledgeable, and eventually disinterested loan officer/customer service rep has earned an undeserved commission.

How many times do I sit and answer my phone only to hear “Hi, I was referred to you by so and so, and uh, I’d just like to know, uh, what is your rate is today?” My mind races with “Are you in contract? How much are you looking to borrow? What is the size of your current mortgage? What is the purchase price? How is your credit? Can you verify income? Are you locking the rate? How long are you looking to lock the rate for? When are you looking to close? Do you own any other properties? Are you buying the property to live in or for an investment? What type of property are you buying?” You see, the answer to all theses pertinent questions (and more) EFFECTS THE RATE! This warrants repeating one more time — the answer to all theses pertinent questions (and more) EFFECTS THE RATE! So, I say to the respective caller while qualifying my answer, “If you have good credit, can verify your income, intend to live in the property, and can show enough liquid assets to buy the property than the prevailing mortgage rate is X.”

Please understand, I do not blame borrowers for asking the question, BUT, I, as a mortgage professional, get frustrated seeing consumers, make the biggest financial decision of their life based on misleading advertisements and other information or lack thereof. The kicker is, that many mortgage companies’ advertisements and customer representatives confuse and/or mislead the consumer into applying for a mortgage with their company while legally and ironically complying with the federal laws set up by our government to protect the consumer. When do you or the borrower find out that the rate and closing costs are not what they appeared to be — AT THE CLOSING! The old bait and switch is still around, but even more costly is the withholding of relative information. Many mortgage officers feel they have a greater chance of closing your mortgage when they give you a direct answer to your direct question without volunteering the other pertinent information you would want to know, if you knew enough about mortgages to ask. This other information used in conjunction with the “what is your rate?” question can save you big bucks at the closing table and over the life of your loan.

There are many variables that go into each and every mortgage deal, and every deal is unique unto the borrower. I will try to provide you with some a general guideline of the “other information” you need to be aware of, so that you will be able to shop for mortgage rates intelligently, and, if you so desire, select a mortgage professional who knows what they are doing which may, consequently save you thousands of dollars.

1.Rates fluctuate daily. Some lenders lag behind the market, and some lenders adjust immediately to the market.

2. A conforming mortgage conforms to Fannie Mae and Freddie Macs; (the biggest purchasers of mortgages) underwriting guidelines. Their 2007 loan ceilings are: 1 family homes $417,000 2 family homes $533,850 3 family homes $645,300 and 4 family homes $801,950. The rates are generally competitive among lenders give or take an eighth to a quarter of a rate. “Jumbo” mortgages exceed the conforming ceilings. Jumbo rates are usually higher than conforming rates.

3. Occupancy affects rates. A primary residence is occupied by the borrower. A rate may have an add- on (increase), if the property is a second home, vacation home, or if the property is used for investment (you rent it out).

4. Loan to value (LTV) is the mortgage amount divided by the value of the property. The higher the LTV, the greater the risk to the lender, and the possibility of a higher rate.

5. A cash out refinance (cash over and above your existing mortgage) may incur an increase in rate depending on the lender.

6. Generally, the shorter the loan term (30 year vs. 15 year), the lower the rate.

7. The better the credit the better the rate. Today lenders are really focused on a credit score. A number determined by comparing your credit pattern and history to the credit bureaus database of proprietary mathematical formulas and models of historical consumer credit patterns. If your score is low, you might be a candidate for re-scoring your credit (legally) to bring up your score and consequently give you an opportunity for a better rate. Make sure that your time frame for getting the money you need coincides with the time it takes to correct or repair your credit. Otherwise, the time it takes to correct or repair your report may prevent you from taking advantage of current low rates or special deals which defeats the whole purpose (“A bird in the hand…”.)

8. Compensating factors affect the rate. The lender may offer you a lower rate because of a low LTV. A great credit score with borderline income may allow you to squeeze into a better mortgage rate.

9. Mortgage Brokers and Lenders have different programs for different types of borrowers. Generally, the more financial information you supply the better the rate. The programs are: Full income Full asset verification, No income with asset verification, No income No asset verification, and Stated income with asset verification. The key is to make sure that you match yourself to the right program so you not only get the appropriate rate, but to also make sure you don’t get turned down. For example, you apply for a full income full asset loan program, but you do not show the income needed to qualify on your tax return, but you may have qualified on a No income verification type of program.

10.There is, or supposed to be, a correlation between rates and points. A point is an up front fee of 1% of the loan amount you are borrowing. “Buying down the rate” means paying points to lower your rate. “Buying up the rate” means, paying fewer points to increase the rate. You would most likely want to pay points if: (a) you need to lower the rate to qualify (b) you will own the property long enough to amortize (recapture) the point money you paid up front (c) You have the extra cash. You will most likely not want to pay points if: (a) You don’t have the extra money (b) You will own the property for a very short time (c) You think rates are going to decline shortly. There are other reasons for paying and not paying points, which should be discussed on a case-by-case basis.

I have saved the best for last!

11. LOCKING THE RATE. When you call and ask “what is your rate?” you will generally get quoted the prevailing rate, a/k/a as the floating rate, which means, if you are ready and able to close within 15-21 days (which means you have applied for a mortgage, supplied your financial information, have a commitment from the lender, an appraisal, a title report, etc.), and you locked in the rate right now, this is the rate you would get. Now, how many first time homebuyers do you think fit that situation, Hmmm? Most residential purchase real estate transactions do not realistically fit a prevailing rate time frame. Most borrowers are not informed, at the time they are quoted the rate, about the if you are ready to close in 15-21 days closing time frame. Therefore, if rates are dropping, fine. BUT, if rates are increasing — Surprise!

Prevailing rate quotes will always be lower than locked in rate quotes. So, if you are rate shopping and want to compare apples to apples, when you are quoted a rate, the key thing is to make sure you ask: “How long the rate is locked in (protected) for? Are there any points, origination fees, broker fees? What lock-in time frames are available?” More importantly, make sure you can close within that time frame otherwise you may be subject to extension fees. Generally, the longer the lock the more it costs. Lock in periods are usually 15 days, 30 days, 45 days, 90 days, 120 days, 180 days. Paying points, increasing the rate, or both, incorporates the cost of the lock. You may want to ask if a float down option is available (if the rate drops after you lock can you get the lower rate.) More importantly than getting a rate lock agreement in writing, make sure the person you’re dealing with is honest, reputable, and whose word means something.

12. The APR (Annual percentage rate). I call it Another Proven Rip-off. A borrower is supposed to be given the APR along with the closing costs and rate information. If you look in the newspaper adds you will often see a rate advertised about one half to one percent lower than the real market rate. If you look on the side of that rate you will see what is known as the APR. This advertisement is perfectly legal, as long as the rate stated is accompanied by the APR rate, but in reality this is very tricky. According to the federal regulation Z, the APR is supposed to be the measure of the true cost of credit, expressed as a yearly rate. The government is trying to assist you, the consumer, in your loan decisions by making loan providers give you the APR “true cost of credit.” They mean well, but, unfortunately, most people do not have the sophistication, knowledge, time or financial calculator needed to figure out the APR. Long story short, by taking the loan amount, the rate you are quoted, and factoring closing costs into the calculation you arrive at the APR. So the rate you see in the newspaper that appears to be lower than everyone else means nothing unless you know exactly what the closing costs are. In these cases, the APR conceals the closing costs. You will find out that most of these advertised below market rates have several points built in to the closing costs. When mortgage shopping, instead of comparing APR’s, for your sake keeps it simple. Find out the rate, how long it’s locked in for, and all closing costs included and then compare. I hope this article helps you save thousands of dollars and good luck to all mortgage shoppers.

Mortgage Rates

So my 12 year old daughter asks, “Why is it that any time there is good news about the economy they also say that there is pressure on mortgage rates to rise? Why does the good news also mean bad news?”

A fair question in my opinion. Scan the headlines – “Jobless Numbers Down – Pressure on Mortgage Rates”, “Promised Tax Cuts may see increase in Mortgage Rates”, “Third Successive Quarterly Economic Growth figures see Mortgage Rates set to Rise”. Then, of course, there are other factors totally out of our control which can also affect mortgage rates such as the recent global liquidity and credit crisis emanating from the US economy.

Mortgage rates are influenced by the official interest rate or Target Cash Rate as set by the Reserve Bank. When the Reserve Bank changes the official rate and in turn, mortgage rates, it is attempting to influence expenditure in the economy. When expenditure exceeds production, inflation results. Therefore mortgage rates are used as a tool to control inflation as a part of monetary policy.

Higher mortgage rates affect borrowers’ cash flows and reduce the amount of money that consumers are able to spend on goods. Lower mortgage rates have the opposite effect. And because lower mortgage rates mean that people have more to spend it puts pressure on prices due to increased demand it puts further inflationary pressures on the economy.

In the dizzy days of the late 1980s inflation was rampant and mortgage rates peaked at 17% per annum. The high mortgage rates severely limited housing affordability. Since those days governments and the Reserve Bank have tended to micro manage the economy to avoid major peaks and troughs. Small increases in mortgage rates, although politically unpopular, are an effective means of stabilising the economy. A little research into the history of mortgage rates in this country will reveal that, at current levels, they are still relatively low.

It should be noted, however, that when we talk about mortgage rates we are generally referring to “nominal” mortgage rates (as nominated in loan contracts, advertising etc). Economists, on the other hand, talk in terms of “real” mortgage rates. So what is the difference between nominal and real mortgage rates? Real mortgage rates take into account the effect of inflation so that Real Mortgage Rates = Nominal Mortgage Rates minus Inflation Rate.

In 1989 when the nominal mortgage rate was 17%, inflation was running at approximately 8% per annum. Therefore the real mortgage rate would have been 9% per annum. Today nominal mortgage rates are approximately 8% per annum and inflation is running at around 2% per annum so that the real mortgage rates are 6% per annum.

In fact if we research real mortgage rates in Australia over the last 25 – 30 years we find that they have hovered within 2% per annum and 10% per annum, compared to nominal mortgage rates which have been between 6% per annum and 17% per annum over the same period. Obviously it is much sexier for politicians to spruik about massive reductions in nominal interest rates.

So in summary, to answer my daughter, an occasional little pain with mortgage rates may lead to a huge gain in the overall scheme of things.