The 7 Habits of Highly Effective Mortgage Brokers

Honesty is the most important aspect in dealing with mortgage brokers. Unfortunately not all brokers are honest. Being aware of the following good practices will help you pick the best mortgage broker and get the best refinance deal.

Habit 1: Not favoring their own loan product

You need to be aware if the mortgage broker is also a lender, i.e. do they have their own loan products? If they do, and they offer there own product, there needs to be a clear, understandable reason why their product is the best choice for your situation.

Habit 2: Unbiased lender choice

Mortgage brokers get commission from the lender you end up borrowing from. You will need to ask them to be up front about the amount of commission they are receiving from the lender. The best mortgage brokers are honest and won't mind you asking this question. The dishonest ones will think twice about doing the wrong thing by you.

Habit 3: Giving you the real cost of the mortgage

Make sure the broker provides you with the annual percentage rate (APR), when looking at or comparing any home loan products. The annual percentage rate shows you the real cost of a home loan by taking into consideration all the foreseeable fees and charges associated with the loan. This is so you can easily compare home loan products.

Habit 4: Providing all the information

You need to know the whole deal. What is the whole service provided by the broker. Do they provide ongoing service and assistance after you secure your loan? If so, find out for how long. Also, what are the fees involved? Theirs and the lender’s. The best mortgage broker will make this clear before any papers are signed.

Habit 5: Insuring client understanding

You need to understand what the benefits and the drawbacks are for you. The best mortgage brokers will explain this to you in a clear way, so you can understand it. This is so you can weigh it up and decide for yourself if refinancing is actually in your best interest. As stated in Dangers of Refinancing there are some bad practices out there, e.g. churning. Making sure you understand the benefits and drawbacks will make it impossible for you to fall victim to this practice.

Habit 6: Being insured

The brokers need to have their own professional indemnity insurance? This protects professionals against liability claims resulting from negligent work. All lenders will have it. However the brokers should not assume they are covered by the insurance of an umbrella organization. The broker needs to know for sure if they are or are not protected.

Habit 7: Being qualified

Is the broker qualified to give you lending advice? All countries have reputable organizations that regulate their mortgage industry and can provide brokers with membership or certificates of credentials, provided they undertake certain courses. Make sure the broker your dealing with has the proper membership or credentials and is qualified to refinance home mortgages. In the United States the American Association of Residential Mortgage Regulators (AARMR) and National Association of Mortgage Brokers (NAMB) are two such companies.

Common Dangers of Refinancing Your Mortgage

The main danger of mortgage refinancing comes from a lack of awareness. If your not aware of what you want from refinancing, and the pros and cons of a recommended deal, then you are open to being taken advantage of by unethical mortgage brokers.

Does this mean you shouldn't use mortgage brokers? No, there are bad eggs in every industry. It just means you should make sure your are aware of the pros and cons of the deal you are being recommended. Mortgage refinancing is not for the uninformed. You need to pick your broker carefully.

You see to find the best mortgage refinancing deal you need to compare the pros and cons of a lot of different options, loans and lenders. To do this yourself would be overwhelming and very time consuming.

Your bank won't do it for you, as they will defiantly be biased and recommend their loan products. That's why it's good that we have mortgage brokers to do this for us. It's there full time job to do this well.

However, as I mentioned earlier their are bad eggs and bad practices. One such bad practice is called churning. Churning is where mortgage brokers refinance a loan even though the benefits do not outweigh the drawbacks for the borrower. They do this with total disregard too the borrower, just so they can get extra commissions.

Awareness is the key here. Just be aware about the pros and cons of a recommended deal. Also be aware of how these bad mortgage brokers operate.

Adjustable Rate Mortgage (ARM) FAQs

My ARM loan is scheduled to adjust soon, should I refinance now?

You may have seen your home equity line of credit rise substantially within the past two years. As interest rates rise, many homeowners are opting to pay slightly more for the piece of mind of having a fixed rate home loan. If you took an adjustable rate mortgage (ARM) instead of a fixed rated mortgage several years ago, then your credit rating may have since changed opening up more options to you. You should explore your options with a mortgage professional as least two or three months before your ARM is scheduled to adjust, especially if rising interest rates may make it harder for you to make payments.

Should I refinance to a pay option ARM loan?

Although there are drawbacks, many homeowners have refinanced into pay option ARM loans in order to take advantage of the flexibility the loans provide. One risk associated with changing to a pay option ARM is negative amortization, meaning your loan balance could go up over time. This change can occur as a result of choosing a low monthly payment option based on an interest rate that is lower than your real interest rate. The difference between the two amounts will actually be added to your loan balance. On the other hand, the pay option ARM can be a good option for you if you need to pay down credit card debt. Offering the most payment flexibility, the pay option ARM offers three to four different payment options each month.

What are the benefits of refinancing my ARM to a fixed rate mortgage?

There are benefits and drawbacks to both types of mortgages. If you decide to refinance your ARM into a fixed rate mortgage, you will lock into a stable payment and avoid the payment increase that occurs when your ARM interest rate adjusts. For some mortgage holders the monthly payment could increase by up to 50 percent making the option of locking in a fixed rate a good way to substantially reduce the monthly payment. Refinancing an ARM to a fixed rate mortgage loan will definitely reduce the stress of steadily rising payments. However, depending on how long you have had your mortgage and how long you plan to stay in your home, you might benefit from waiting until a change is absolutely necessary. Discuss your options with a mortgage professional before making a decision.

I have a sub-prime ARM loan, what are my options?

Many homeowners who used sub-prime ARMS to purchase or refinance their homes are now being hit with payments that are difficult or impossible to make. Most importantly, if you have a sub-prime ARM that has not adjusted yet, you should discuss with a mortgage professional the options you might have to switch to a different type of loan. Refinancing out of a sub-prime ARM into a fixed rate mortgage is probably the best option if you have made regular payments for at least the past 12 months.

Important Tips to Do When a Bank Turns Down Your Offer

In a struggling and down economy, there are many patterns and realities that home owners usually resort to in order to counter the stress and pressure of the overflowing market. It is quite common that home owners encounter predicaments such as short sale and foreclosure. Resorting to short sale is a common option that home owners usually venture into however not all packages are welcomed by mortgage lenders with both arms open wide. If you want to sell your property through short sale and your offer is unfortunately turned down, there is still hope for you in the process.

It is actually a very tedious and challenging endeavor to offer banks short sale especially when encountering financial and payment difficulties. However, it is not almost always possible that all short sale offers are approved especially by reluctant home loan providers who are actually at the losing end in this option.

Offers which are usually turned down have certain loopholes in the very beginning which home owners tend to neglect or take for granted. Before you try to consider another alternative, you ought to carefully look into some aspects which may have caused the said rejection.

First and foremost, it is possible that you have incomplete requirements when you submitted the necessary documents for your package. It is imperative that you needed to supply all the requirements that your lender need as basis for the approval or acceptance of the short sale offer.

Oftentimes, gaining the decisions that will give you the go signal to materialize your short sale transaction with a potential home buyer is delayed since the mitigating department of the bank still has to deal with other things and if you have missing documents to begin with, expect that they will not waste their precious time looking for your papers. In worse scenarios, you will not only suffer delay but rejection of your offer.

Banks and mortgage providers are the first ones to lose a significant amount of money in short sale schemes. Therefore, if you are offering an amount for the property which is too low compared to the amount of the mortgage that you still owe, then it is more likely that you will get rejected. You ought to understand that the lender practically bases a qualified amount with the Broker Price Opinion or BPO. Hence, if your offer is much too low than the BPO, then rejection of your offer is most imminent.

As soon as you have determined the different components and factors that may have affected and led to the rejection of your offer, it is high time to make a counter offer. Make sure that you negotiate with your potential buyer and encourage him to make a much higher offer which is closer to the BPO. Should your buyer not adhere to your suggestion, you can find other buyers who are more amenable to this idea.

Experiencing rejection from your bank or lender ought not discourage you and seize your venture towards a great deal in your real property investment but rather make you aim for more.

Loan Modification Agreement - Terms and Conditions to Be Aware of and Understand Before Signing

When you qualify for a loan modification agreement with your lender, the next step is to sign a new contract that binds you to the new terms of your loan. It is very important to understand what the terms and conditions are for this new mortgage before you agree to anything. Remember, that you only are allowed one loan workout, so you certainly want to be sure that you are getting the terms that you will be able to afford now and in the future.

A loan modification agreement is a binding contract. This is the document that actually changes the original terms of your mortgage and defines the new payment, interest rate, loan term and repayment conditions that you will be required to comply with. You will have to sign this in front of a notary and it becomes part of your original loan documents. This document will usually be sent out to you via priority mail delivery, and must be returned within 2 weeks to be valid. You should read this agreement carefully and make sure you understand what you are signing. You can contact your lender if you have any questions-better safe than sorry.

Of course, before you ever receive your loan modification agreement you will have to apply and qualify for a loan workout with your lender. This is usually a 30 to 45 day process if done correctly. You will need to submit your financial information so that your bank will be able to determine what if any program you qualify for. The fact is that you can learn the standard guidelines for approval and use these to fine tune your own application. Once you know what your bank is looking for you will be able to make any minor adjustments to your budget in order to have a good chance at qualifying for help.

A loan modification agreement with your lender can be the solution you are looking for to stay in your home. While not every homeowner will be able to qualify, those who can meet the guidelines may be able to get new terms and conditions that are affordable and sustainable. Do not agree to any loan workout that you will not be able to pay-you are only given one chance so make certain that the loan modification terms are going to work for you now and in the future.

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Should You Refinance That Adjustable Rate Mortgage?

Adjustable rate mortgages allowed many people to get moved into the house they wanted, even when it may not have been possible with other types of financing. This was very convenient at the time because interest rates were low and things looked very good. But, for some, there may be a little cloud over your head because its status may be about ready to change. Here are some things that will help you to decide if you need to refinance your adjustable rate mortgage.

Your adjustable rate mortgage has had its fixed rate portion of time, and now it is about to go to a non-stable adjustable rate. As you very well know, the adjustable rate could change every month, or at least every year. The uncertainty is there because not you, or anyone else on this planet, knows what the economic future holds.

This means that there will always be a strong amount of uncertainty attached to this type of mortgage. Refinancing is a possible solution - but only if you are planning on staying in that house for awhile. To get a new mortgage, means that you will have new expenses involved in the closing and processing of it. Refinancing will add both to your overall debt, and will probably increase your payments, too.

While only you can decide if it really is a good time, you also need to be aware that if you do wait too long, then you may not be able to get a good interest rate. Having a fixed rate mortgage, at a higher rate may not be much better than having a high interest rate adjustable mortgage. It is possible that you may not be able to afford either one. In either case, if the interest does go back down, you could refinance again. This means your best option may be to refinance when you can and get the lower rates - at least they will be guaranteed.

If you see that you can ever get a lower interest rate on a fixed rate than on what you have now - the decision should be obvious. Get the fixed rate mortgage as quickly as you can.

One of the only means that may indicate that it is a good time to refinance is to watch the market carefully. Observe the trends that reveal whether there most likely will be an increase in the interest rates. If the experts predict that rates are likely to keep on rising, then you know it is probably a good time to get a new mortgage.

The bottom line about refinancing may be something as simple as how well you sleep at night. If you are spending time worrying about it, or if your mate is, then it may be worth that better sleep to have something more predictable. Before you sign on a new contract, though, be sure that you carefully compare a number of offers so that you make sure you get the best deal available to you.

How Soon Can Your Refinance Your Current Mortgage?

How soon can you refinance your mortgage after taking out your existing loan? With interest rates scraping along at historic lows right now, it’s a question many homeowners who bought or refinanced in the last couple years are asking themselves.

The good news is, there is no limit. Legally, you could close on one mortgage today, then go right out tomorrow and refinance it – although it’s hard to imagine a scenario where that would make sense. But if you’ve had your current mortgage for one or two years, you’re perfectly within your legal rights to refinance, regardless of whether your current mortgage is a refinance or the original one you purchased the home with.

That said, few lenders are likely to approve you for a new mortgage if you’ve been in your current one for less than a year. In addition, your current lender may have restrictions on how soon you can get out of the loan, usually in the form of prepayment penalties (because you’re using the new mortgage to pay off the old one). Typically, you need to stay in your current loan at least 12 months before refinancing without penalty, although not always.

Beware prepayment penalties

On the other hand, some mortgages come attached with prepayment penalties that apply for five years or more. This often phase out over time, so the bite isn’t as bad if you refinance in the fifth as it would be if you refinanced in the second.

Mortgage prepayment penalties come in a variety of forms, often 2-3 percent of the loan balance, or the equivalent of six month’s interest charges. They don’t actually prevent you from refinancing, but can make it more expensive and less worthwhile. But depending on how much you can trim your interest rate by refinancing, it can still turn out to be worthwhile.

Another thing to keep in mind – many homeowners may not be aware that they have a prepayment penalty on their existing mortgage, so it’s important to check before proceeding with a refinance. You don’t want to get stuck with an unpleasant surprise. Lenders are supposed to disclose prepayment penalties before you take out the loan, but some may gloss it over or it may simply not have registered with the borrower among all the other details of closing the mortgage.

Don't worry about the old break-even point

One of the major misconceptions people have with repeated refinancing has to do with the break-even point. The break-even point refers to how long it will take the savings from refinancing to equal the closing costs on the new loan – typically about four to seven years. The rule is, if you’re not going to be in the home long enough to reach the break-even point, it’s not worth it to refinance.

However, many people mistakenly apply this same rule to repeated refinancing – they assume they should not refinance until after they reach the break-even point or they’ll lose money. But that’s not the case. The cost of the last refinance is already rolled into your existing loan, either in the loan principal itself or in terms of a higher interest rate. But if you can save money by refinancing, you’re saving money. The only break-even point you need to be concerned about is the one on the new mortgage – if you’re still in the home past that date, you’ll come out ahead.

People do sometimes get into trouble by repeatedly refinancing their mortgage in a quest for the lowest possible rate. The problem here isn’t that they’re refinancing too soon, but that their savings on the new mortgage(s) aren’t enough to make refinancing worthwhile. They get incremental reductions in their interest rate but the principal keeps going up, up, up from the repeated closing costs, pushing their break-even date far into the future.

Declining equity may be a problem

Another concern, particularly in the current housing market, is that people who refinance soon after taking out their previous mortgage haven’t had much time to build up equity in their home. In fact, the way housing values have fallen, anyone who bought a home in the last 4-5 years will likely have less equity now than when they first purchased their home.

This can make it more difficult or expensive to refinance, particularly for homeowners who are “underwater” on their mortgages, owing more than the property is currently worth. But even reduced equity can be costly. If your equity in your home has declined to less than 20 percent of its current value, you’ll probably have to pay private mortgage insurance (PMI) on the new mortgage, even if you weren’t paying it before (because you’re above an 80 percent loan –to-value). That can effectively add another half-percent to your interest rate.

Furthermore, if you have very little equity remaining in your home, you’ll also find yourself paying a higher interest rate than someone who can meet the 80 percent loan-to-value standard. Interest rates typically go up a notch each time the loan-to-value ratio exceeds 80, 90, 95 and 97 percent, meaning you may not be able to get the rate you were hoping for if your house has significantly declined in value.

The easiest way to determine if refinancing at this point is to use a mortgage calculator, such as the ones at right. Check with a mortgage broker or shop around several lenders to find out what kind of rate you can qualify for, then plug the numbers in and see how much you’ll save and how long it will take you to recover your closing costs.

Remember too, to keep the term of your mortgage the same – if you’ve had your current 30-year mortgage for three years, assume 27 years for the new mortgage – assuming it as 30 years will exaggerate the savings. You may still end up refinancing into a 30-year loan, but you can use the results to figure out how much you should pay each month to pay it off in 27 years and stay on the same payoff schedule you’re on now.

No-cost refinance can simplify things

Finally, a popular option for many borrowers when refinancing is a so-called “no-cost refinance.” This is a bit of a misnomer, because the costs are actually covered by paying a higher interest rate than you would if you simply rolled the closing costs into the loan principal – about a quarter percent more.

This makes it easy to determine if you’re saving money by refinancing – if the “no cost” interest rate is lower than your current interest rate, you‘re coming out ahead. However, such loans typically come with prepayment penalties stretching out a number of years, since the lender needs that time to recoup the closing costs reflected by the higher rate. In addition, if you plan on staying in the home more than seven years or so without refinancing again, you’ll end up paying more than you would have if you’d taken the lower rate and simply rolled the closing costs into the principal.