Archive for May, 2009
How does a Mortgage Broker get Paid? Broker or Bank?
Posted by Top Home Loans in General Business, Mortgage Advice, Mortgage Rates on May 28, 2009
Mortgage Broker’s Compensation
Mortgage Broker’s compare the products of all the financial institutions to provide you with the optimal product for you and your mortgage needs. They usually work for a mortgage brokerage that is associated with several different financial institutions. When a mortgage broker finds a product that fits your needs and sets that mortgage up for you, then they receive compensation in the form of a finder’s fee. This finder’s fee is based on the mortgage size and the product.
The Mortgage Broker cannot tell you what property to purchase, so they have little to no control over the value of the mortgage; however, the mortgage broker can advise you on what mortgage product to purchase, so they will usually direct you to a product that may pay them a greater commission.
Why use a Broker when going to the Bank avoids the Middle Man?
When going directly to the bank, even though they are saving on not having to pay the middle man, you will usually get comparable rates. Sometimes, it is possible to find a mortgage rate that is lower than what the mortgage broker is offering. This can occur because the broker is not associated with enough banks or the broker has not done enough research on as many products to be able to get you this product. Also, sometimes brokers are unwilling to reduce there commissions to save your business, so they will allow you to go to another bank to get a better rate.
Where is the Better Mortgage Advice?
When looking at the two different classes of financial advisers, the mortgage broker is a mortgage professional. The broker should know mortgages inside and out, and be able to provide you with top notch information, and an array of mortgage products that will meet your needs. Unfortunately, most mortgage brokers only deal with a few clients a month, and they do not have the experience to meet every possible situation that could occur.
Mortgage Specialists at banks have to sell a lot more mortgages, think 5 to 10 times, what a mortgage broker sells in order to make the same compensation. This means a mortgage specialist has seen more situations, and has been able to provide more mortgage approvals. The mortgage specialist will also have a greater knowledge of other financial products than the mortgage broker. They will be able to discuss bank accounts, lending, investing, etc. more fluently than the broker.
Which one should you choose? In most cases, finding an experienced mortgage broker is the right way to go; however, if you are able to get exceptional service and a great rate directly from the bank, then you may want to consider that option as well. Review your options on your own before making any final decision.
Save your Mortgage from the Bank. Simply Mortgages can Help!
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Lower Interest Rates or Prepayment Abilities; What is Better?
Posted by Top Home Loans in General Banking, Mortgage Advice, Mortgage Rates, Retirement Planning on May 20, 2009
A Low Rate Mortgage with No Special Features
The following mortgage is a low rate mortgage that is much lower than the general going rate for mortgages. It offers no prepayment privileges, no payment increases, and no ability to discharge your mortgage until the renewal date.
The following is the details of a standard mortgage:
Mortgage Amount: $300,000
Mortgage Rate: 3.50%
Amortization: 35 Years
Term: 5 Year Fixed Rate
Mortgage Payments: $1,235.49/month
At the end of the 5 year term, you will have a mortgage balance of $276,002.14 remaining on your mortgage. This is with fixed payments on a basic mortgage. In comparison we will look at a higher rate mortgage, with a person taking advantage of the mortgage prepayments.
A Mortgage with a Higher Interest Rate and Mortgage Prepayments
A mortgage is calculated with today’s dollars when you initial purchase the property and get the mortgage; however, the balance on your mortgage will decrease as you pay down your mortgage, the value of your property will most likely increase, and your income should steadily rise. In Canada, inflation has averaged 3.78% over the last 30 years, so it is expected that your income will rise by at least inflation. This means that on average you can pay at least 3.78% more than you could the previous year. If you steadily increase your payments to reflect the increases in income, then you will see the following:
Mortgage Amount: $300,000
Mortgage Rate: 3.80%
Amortization: 35 Years
Term: 5 Year Fixed Rate
Initial Mortgage Payments: $1287.30/month
At the end of the 5 year term, you will have a mortgage balance of $270,870.20 remaining on your mortgage. This is with fixed payments on a mortgage where the payments are increased with inflation. By using this method of increasing your payments for the first five years, you will reduce the amount of time it will take to pay off your mortgage by 8 Years and 10 Months. This also represents a savings of $64172.26 in interest.
By using this method, you will have your mortgage paid off in 244 months, while if you relied on a low interest rate mortgage, then you could be paying your mortgage for as long as 420 months. The additional 176 months in mortgage payments would result in an additional $217,446.24 in payments being paid towards your mortgage.
This is an amazing amount of money that the bank is collecting in additional interest from the mortgage holder.
The final factor to consider is what rate is the break-even point between a basic mortgage and a mortgage with prepayments.
Basic Mortgage Vs. Mortgage with Prepayments
To compare the two strategies by what is remaining after the term is complete, the one with prepayments will usually be the winner; however, in order to calculate what is paid in interest over the term to see what you are saving in interest, an amortization schedule must be reviewed.
Amortization Schedule for the Basic Mortgage
Totals:
Total Paid: $74,129.40
Interest Paid: $50,131.56
Principle Paid: $23,997.84
Amortization Schedule for the Prepayment Mortgage
Totals:
Total Paid: $83,302.20
Interest Paid: $54,172.40
Principle Paid: $29,129.80
Under these details, the prepayment mortgage is paying down the mortgage principle by an addition $5,131.96. As the mortgage gets smaller and smaller, the prepayment mortgage becomes more and more effective at reducing the interest paid. As stated previously, by using this method, you will save yourself 176 months worth of mortgage payments which will more than offset the slightly higher interest rate. In all cases, it is always better to choose a mortgage with good prepayment and payment increase terms over a lower interest rate.
If you do choose a mortgage with the prepayment option, then make sure you use it. Many people have this function, but they never use it. Make sure you do not make this same mistake.
Save your Mortgage from the Bank. Simply Mortgages can Help!
Top 10 Tips to Paying off your Mortgage Fast
Posted by Top Home Loans in General Banking, Mortgage Advice, Mortgage News, Retirement Planning on May 19, 2009
The Top 10 Tips to Pay off your Mortgage Fast
- Get a mortgage that offers the best prepayment priviledges and use them. Using prepayments is the best way to pay down your mortgage because each prepayment you make goes directly to the principle balance of your mortgage.
- Increase the frequency of your mortgage payments to decrease the amount of interest paid. Choose accelerated payments as well because you will make two extra payments per year to principle.
- Flexibility is important in your mortgage payments. Start with a low payment and increase it as you go; however, if you have extra money, then always apply this money towards the principle balance of your mortgage.
- Choose a variable interest rate when rates are high, and choose a fixed interest rate when rates are low in order to minimize your rate overall.
- The sooner that you pay off your mortgage, the sooner you will be able to make additional investments in your retirement. Keep this in mind when saving money.
- Don’t buy a house that is bigger than you can afford. If you buy a property that is beyond your affordable limit, then you will spend the first 5 years of your mortgage only paying interest. You should be able to pay your mortgage with 30% of your monthly income or less.
- Get different pre-approvals from different banks, or get a mortgage broker that will meet your mortgage needs while giving you the lowest interest rate.
- Don’t buy a house unless you plan to own the house for 3 or more years. This is important because the sale of a property can cost you as much as 10% of the property price in legal, real estate, and selling fees.
- When renewing your mortgage, do not sign with your lender. Do some shopping to see what the rates are at that time before deciding on a mortgage product to renew with.
- Increase your payments as your income increases. The increased amount you are paying is going directly to principle, so this will allow you to pay off your property faster.
If you purchase a property that is within your budget, and you agressively pay down your mortgage, then you can expect to be debt free faster than you expect. Make sure you follow these rules, and choose a product with greater features than rate, and you will find you are debt free faster with much less paid towards interest.
