Browsing Category

15-year mortgage

How Do Mortgage Brokers Get Paid?

December 19, 2019

mortgage brokers

iStock

So, you’re looking to buy a home. This is an exciting time filled with home tours, wish lists, and looking forward to making new memories in a new house. But finding a lender and getting a mortgage can be a difficult and confusing task.

Many people don’t have the time to contact numerous lenders and comb through details when looking for a mortgage, and choose instead to go to a mortgage broker for help. Before you do, you should know what mortgage brokers can really do for you and how these loan brokers get paid.

What mortgage brokers do

If you go to a bank for a mortgage or home loan, it will offer only loans carried by that bank. Since it’s just one institution, its home loan options may be limited and may not suit your needs.

If you go to a mortgage broker, he or she should have a variety of loan options from various lenders. It’s the mortgage broker’s job to find the best mortgage rate, tailored for you.

So, if you need to get a house but can’t afford more than a 5% down payment on a 30-year mortgage, your loan broker should approach lenders with those terms.

Hopefully, with the help of that mortgage broker, you’ll find a lender that will offer you the mortgage you need more quickly than you would shopping for mortgage rates on your own.

How loan brokers get paid

Unlike loan officers, mortgage brokers don’t work for banks. They operate independently and must be licensed. They charge a fee for their service, which is paid by either you, the borrower, or the lender.

The fee is a small percentage of the loan amount, generally between 1% and 2%. If you pay this fee, the dollar amount can be either added to the loan or paid upfront.

This 1% to 2% of a loan may sound like a lot of money for you, or for the lender, to pay on top of the mortgage you’re already committing to. Fees may vary, depending on the size or number of loans, but luckily, you shouldn’t be stuck with any hidden fees.

Loan brokers are required to disclose all fees upfront and can charge only that disclosed fee amount. Further, each fee should be itemized, and the broker should be ready to tell you, the borrower, exactly what each fee was for.

When applying for a mortgage, it’s important to know exactly how much you’ll be paying in fees. Knowing what your mortgage broker fees will be upfront will be helpful.

Pre-Dodd-Frank Act

New regulations put in place by the Dodd-Frank Act have restructured how mortgage brokers get paid.

Before this legislation came into effect, lenders could compensate mortgage brokers for getting their clients to agree to high-interest rate loans and signing off on costly fees.

If an unassuming client worked with an unscrupulous loan broker, there were few laws in place to protect the client. As a result of the Dodd-Frank Act, that has changed.

Here are some ways mortgage brokers cannot get paid:

  • They cannot charge you, the borrower, hidden fees.
  • Their pay cannot be tied to your loan’s interest rate.
  • They cannot get paid for steering you in the direction of an affiliated business, such as a title company.
  • In general, they cannot be paid by both you and the lender.

Unless you paid upfront costs, mortgage brokers generally do not receive payment unless the deal is closed.

When you’re thinking of buying a home, and starting the arduous process of shopping for a mortgage and talking to lenders, teaming up with a broker may seem like a good idea.

Although it might be a bit scary to trust someone with the future of your mortgage, it can be a good idea to get some help.

With lots of knowledge of mortgages, plus experience working with loan officers and mortgage lenders, a broker may be invaluable in your first stages of buying a home.

Brokers will take a fee off the top, but that fee could be well worth it!

The post How Do Mortgage Brokers Get Paid? appeared first on Real Estate News & Insights | realtor.com®.

15-Year vs. 30-Year Mortgage? How to Decide

September 21, 2019

choosing a house and mortgage

Chunumunu/iStock

Banks offer a dizzying array of mortgage options, and one of the biggest decisions you’ll have to make in the mortgage process is how long your home loan will last. In other words, you’ll have to weigh the pros and cons of a 15-year mortgage and 30-year mortgage.

How long are you willing to linger with your loan? What kind of monthly payments can you stomach? How do mortgage rates affect the bottom line? We’re here to help with a little mortgage math!

15 or 30 years: What’s the difference?

At first glance, the difference between a 15-year mortgage and a 30-year mortgage seems obvious: A 15-year mortgage stretches your monthly payments over 15 years, and a 30-year mortgage spaces mortgage payments out over, of course, 30 years. But you already knew that much about mortgages, right?

Now here’s something you might not know about mortgage terms: Since a longer loan life means you can make smaller payments, a recent survey found that 86% of home loan applicants opt for a 30-year mortgage (a fixed-rate mortgage).

Here’s how the mortgage term numbers play out: If you purchase a $300,000 home with a 20% down payment, a 30-year (fixed-rate) mortgage at the going interest rate (currently 3.68%), your mortgage payment will be $1,102 per month for 30 years.

Get a 15-year mortgage for the same loan amount, and you’ll be rewarded with a slightly lower interest rate (currently 2.69%), but you’ll have to cough up $1,622—that is, $502 more per month on your mortgage payment. That’s a pretty significant difference in monthly payment, no doubt.

Bottom line? If you can’t afford large monthly payments or are worried about not being able to in the future due to job loss, sporadic income, health issues, or whatever other curveballs might come your way, it’s understandable that you’d opt for a 30-year mortgage with the higher interest rate rather than 15-year loan with the lower mortgage rate. The peace of mind alone could be priceless when it comes to choosing the terms of your mortgage (which may also have property tax rolled into it). And in many cases, the 30-year mortgage (even with its higher interest rate) is a more practical loan, depending on personal finances and cash flow.

Ultimately, your potential circumstances over the life of the loan should absolutely be taken into consideration when selecting a mortgage and its corresponding monthly payment. How will (or won’t) that monthly payment fit into your life for (possibly) decades to come? How much house do you really need at this point in your life, and does it make sense to pursue a smaller loan and/or home instead? Will you want or need to refinance your loan down the road? Asking these questions is an essential exercise in making a prudent mortgage decision, particularly for first-time homebuyers who are navigating the changing and still settling landscape of their financial situation.

Stepping into a home loan requires more than just number-crunching; it demands a bit of soul-searching and thinking ahead, too. This is something that will be a significant part of your life every month for many years.

Benefits of a 15-year mortgage

What many homeowners forget to factor in is that a 15-year mortgage may cost more now, but it will save you major cash in interest payments to your lender down the road.

“A 15-year loan will save you a ton of money,” says Casey Fleming, author of “The Loan Guide: How to Get the Best Possible Mortgage.”

You might be surprised by just how much, so let’s continue with the above example: For a $300,000 home purchased with a 20% down payment, a 30-year mortgage at today’s average interest rate (3.68%) will end up costing you a total of $456,708—that’s in interest and principal—by the time those 30 years are up.

By contrast, a 15-year loan at today’s average interest rate (2.69%) will ultimately cost you only $351,933. In other words, a 15-year mortgage will ultimately save you $104,775 in interest payments—serious money, which might add up to a very good reason to tighten your belt and give the 15-year mortgage a try.

You can run your own numbers with realtor.com®’s mortgage calculator to figure out which loan approach is right for you. Also be aware that your debt-to-income ratio may be a factor in whether you qualify for a 15-year mortgage.

How to save money on a 30-year mortgage

If you can’t afford making the higher payments on a 15-year mortgage but like the idea of saving on the loan’s interest, there are other ways to make that happen, even if you have a 30-year mortgage.

For one, most lenders don’t prohibit borrowers from paying off a loan early, so there’s no reason you can’t pay off a 30-year mortgage in just 15 years (or 20, or 25, or whatever you can manage). So if you do find yourself with extra money one month, due to a bonus or tax refund, consider putting it toward paying off your mortgage early. You’ll save a huge chunk in interest without sacrificing the sense of security that comes with knowing you can easily afford to make your monthly mortgage payments—and maybe occasionally a little extra.

Just know that a 30-year mortgage does not always require you to spend 30 years paying off the loan. You can technically make it into a mortgage that best fits your personal situation. And for that matter, you can always explore the option of a refinance on your mortgage if you’re interested in modifying your mortgage’s interest rate or terms.

—————

Watch: What Your Mortgage Broker Wishes You Knew

The post 15-Year vs. 30-Year Mortgage? How to Decide appeared first on Real Estate News & Insights | realtor.com®.