Independent mortgage brokers have had a significant positive impact on the lending industry.
By: Hitesh Khan/
Today, the use of a professional mortgage broker is one of the key strategies used by sophisticated borrowers and the lending industry.
What is a Mortgage Broker?
A mortgage broker is an independent real-estate financing professional who specializes in the origination of residential mortgage loans. Mortgage brokers normally pass the actual funding and servicing of loans on to wholesale lending sources. A mortgage broker is also an independent contractor working with (on average) as many as 20 lenders at any one time. By combining professional expertise with direct access to hundreds of loan products, a broker provides the most efficient way to obtain financing tailored to the borrowers’ specific financial goals and in sealing deals for the lending industry.
What Do Mortgage Brokers Do?
In the volatile home-lending market, mortgage brokers can serve as safeguards, offering their clients security, safety, and peace of mind. One of the broker’s most important functions is escorting your loan application through the entire process, constantly patrolling the component transactions for possible breakdowns. A professional mortgage broker can wade through the mountains of rate data and program options, researching current market conditions to find the most accurate and up-to-date information about cost-effective loan options from the lending industry.
Brokers Handle the Details!
There are literally thousands of variables in the lending industry that can affect the outcome of your mortgage transaction. That’s why you need a mortgage broker to act as a liaison between real estate agent, lender, appraiser, credit agency, the underwriters, the processors, lawyers, and any other services which may affect your transaction.
A mortgage broker also:
- Discusses and explains financing program options
- Informs you, in writing, of lock-in options
- Explains all documents of the loan application
- Explains all associated costs of the loan application
- Explains the disbursement of all loan applications
- Explains the loan process, from application to closing
- Provides you with a good faith estimate of cost and fees
- Communicates with you throughout the loan process in a timely manner
- Coordinates the final closing of your transaction
Make sure you completely understand the mortgage varieties you are applying for. Knowing your mortgage varieties entails understanding whether the rate will be fixed or adjustable.
In a fixed rate mortgage, the principal and interest portion of your payment is guaranteed to remain the same for the life of the loan. Keep in mind, however, that any increase in homeowners insurance will cause your monthly payment to increase if those items are escrowed and included as part of your mortgage payment.
An adjustable rate mortgage (“ARM”) is any mortgage where the interest rate can change. Typically, the rate will be fixed for a certain period of time and will then adjust periodically. A common type of ARM is a two year ARM. For this type of product, the rate will remain fixed for two years and will then adjust annually thereafter. This is just one example of the many types of adjustable rate mortgages that are available.
To know your mortgage varieties, you will need to provide the lender or broker with certain financial and employment information and documentation during the application process. Typically, you will need to provide information about your income, employment, assets and liabilities. To support this information you will likely have to provide salary slips, bank statements, tax returns, investment reports, divorce decrees, and any other documentation to support your information. If you have all of this information available when you submit your application, the process will move ahead much quicker.
Most lenders offer a rate lock option. If you’re working with a broker, they can facilitate the rate lock with the lender. A broker cannot issue a rate lock directly because they are not making the loan. Do not accept any verbal assurance that your rate is locked and do not accept any excuse for not getting it in writing. Without a written rate lock, you have little recourse if your rate is different when you arrive at the closing. In a rising interest rate environment, the change in rate between the time you submitted your application and the time you arrive at your closing can be substantial.
Homeowners who are worried that the interest rates for their home loans are rising, are moving towards fixed rate loans. Even though the cost for the current floating rate loans are still lower, homeowners seem to prefer the security fixed rate loans provide for the near future.
When considering mortgage varieties and to reduce the uncertainty, you can do mortgage rate lock in with today’s mortgage rates when you apply for a loan. That way, if rates rise over the weeks before you close, you still get the rate you locked in.
Homeowners who are worried about the other types of home loans with interest rates that are exceptionally volatile, might opt for a fixed rate loans. Fixed rate loans may give homeowners thousands of dollars (perhaps even a five-figure sum or more) each year. Homeowners could potentially also enjoy a two-three times difference in their total interest repayment if they opted for one.
Some homeowners may however miss out on such potential savings because they are overwhelmed by the banking process. Others might be put off by technical jargon like SIBOR, FHR, Board Rates. Such homeowners may hesitate and wish for someone to just hand them the cheapest home loan package across 16 banks.