Mortgage-Refinance Treachery: Avoid Mortgage Bankers and Brokers Biggest Trick -- The Sales PitchWhat the average homeowner or home buyer fails to realize is that bankers, loan officers, mortgage brokers, or whatever your lenders call themselves, are salesmen. Certainly, if you purchased your home from a realtor and used her lender, you most likely got a feeling of trust in that person, because the realtor referred him. Beware of this potentially dangerous water. "This guy will help you complete your loan," the realtor will tell a prospective buyer. "He'll help us close quickly, and you'll be in your new home in less than a month." Suddenly, the banker is a guy who will help you. Now, he's your friend. The intention here is not to scare you into thinking that everyone in the mortgage business is a bad person, looking to rip you off, but don't trust this guy, just because a realtor sends you to him. Remember, they work together. The realtor needs the sale, and the banker needs to make loans. They are both salesmen, and salesmen are people who make commissions, based on a particular price. This goes for loan officers, just the same as it goes for a realtor or a car salesman. That used car salesman makes more if you pay more, and the mortgage banker makes more, based on how high your interest rate is. When I worked in the mortgage business as a full-time loan officer and sales manager, the average customer was far more concerned with the costs of completing the loan and the final monthly payment than with the interest rate on the money they were borrowing. This is one of the biggest mistakes home buyers and people refinancing make in completing a home loan. Unfortunately, most Americans live from one payday to the next, barely paying the bills, so all they're concerned with is what the monthly payment will be and if it will fit their budget. Bankers feed off of this, as it becomes easy to simply fit a loan into a payment schedule, ignoring interest rate, altogether. In fact, most people make it easy on the mortgage broker, asking more questions about payments than about interest rates. The unsuspecting borrower will say, "I can't pay more than $1,000 per month." The cunning loan officer will feast on this person, like a starving man at a Thanksgiving dinner. Remember, bankers and mortgage brokers keep secrets, advising in ways that appear to save you money but really cost you thousands in the long run. Let's assume the previously-mentioned person needs $100,000 to purchase a home. An unscrupulous mortgage broker, looking to make as much money as possible on the borrower will find out how much the taxes and insurance will be on the property. Let's assume they are $230, which will be added to the person's monthly mortgage payment. Let's also assume that the market bears an interest rate of 6% for a 30-year fixed rate mortgage (more on terms later). Now, the mortgage broker says to the borrower who can only afford $1,000 monthly, "What if I get you into your house for less than $900, including taxes and insurance? Can we do the loan today?" This person, dying for his chance at the American Dream, is going to jump at this, thinking the mortgage broker is his new best friend and ignoring the interest rate on the loan, altogether. What the broker, trying to steal every possible cent from this one deal, has done is sold the borrower a $100,000 loan at an interest rate of 7%, which creates a principal and interest payment of $665.30 monthly. Combine this with $230 in tax and insurance escrows for a monthly mortgage payment of $895.30, almost $105 less than what the borrower said he could afford - a pretty nice savings, the borrower will think. Think about it; if you said you could afford no more than $1,000 per month, and the person, in whom you placed your trust, told you your payment would be $895, you'd probably be pretty excited, huh? What has really happened, though, is the mortgage broker has done the borrower, his valued customer, a great disservice. Why, you may wonder. Because the market for this model bears an interest rate of 6%, and we're assuming the borrower has good credit. The loan officer could have offered the far better 6% rate, which would create a payment of $829. This is $66 less than the borrower's payment at 7%. Also, the 7% rate will cost the borrower an extra $792 each year ($66 times 12 months). That is nearly $4,000 over five years! All this, just so the mortgage broker could pocket a few hundred dollars more on this one deal. If the loan amount was much higher, you could lose tens of thousands of dollars in just a few years. So, what is the big secret? Simply put: bankers and mortgage brokers do not always offer the best possible interest rate, because they make money, when you get a higher interest rate than the market bears! So, be careful of this old trick. Tell your mortgage professional that you want the Par rate. This is the best rate the lender is willing to offer on a given day, without charging a premium. In other words, you could get a better rate, but you'd have to pay to get it. Now, if you are caught off guard and sold a rate that is greater than Par, your payment will be bigger and the loan officer will make extra money. Don't let it happen. Mark Barnes is the author of the new novel, The League, the first work of fiction, based on fantasy football. He is also an investment real estate and home loan finance expert. Learn more about his suspense thriller at http://www.sportsnovels.com. Get his free mortgage finance course at http://www.winningthemortgagegame.com
MORE RESOURCES updated Thu. March / 28 / 2024 Mortgage Interest Rates Today, March 28, 2024 | Rates Are Down This Week. Will They Stay That Way? Business Insider 3 Times Refinancing Your Home Makes No Sense The Motley Fool Types of Mortgage Refinance Options Bankrate.com Will Mortgage Rates Go Down in 2024? What Homebuyers Should Expect Business Insider How to Refinance Your Mortgage NerdWallet Underwater Mortgage: What To Do Bankrate.com Mortgage Refinance Rates: Compare Current Rates Business Insider When to Consider Refinancing Your Mortgage Business Insider Mortgage Interest Rates Today, March 27, 2024 | Rates Down Slightly as Homebuying Season Ramps Up Business Insider 30-year refinance rates: What to know CNN Underscored 15-Year Mortgage Refinance Rates: Compare Current Rates Business Insider The best mortgage lenders for refinancing in March 2024 CNN Underscored Should You Refinance Your Mortgage In 2024? Bankrate.com Mortgage Relief and Mortgage Assistance Programs [2024 ] The Mortgage Reports Current mortgage refinance rates CNN Underscored Best Mortgage Refinance Lenders In 2024 Bankrate.com Current mortgage interest rates: Mortgage rates today CNN Underscored MBA: Mortgage Applications Decreased in Weekly Survey Calculated Risk Best Mortgage Refinance Lenders of March 2024 Business Insider Refinance Requirements: What You Need to Refinance Your Home in 2024 The Mortgage Reports When to Refinance Mortgage: Is it Time? - Buy Side from WSJ The Wall Street Journal Mortgage Rates This Week NerdWallet Cash-Out Refinancing: How It Works, When To Do It Bankrate.com Conventional Refinance Rates and Guidelines for 2024 The Mortgage Reports How Soon Can You Refinance a Mortgage Loan? 2024 Rules The Mortgage Reports How To Refinance An Underwater Mortgage Bankrate.com How Soon Can You Refinance a Mortgage? NerdWallet Current 15-year refinance rates — and lenders that offer them CNN Underscored Mortgage Rates Chart | Historical and Current Rate Trends The Mortgage Reports Best Refinance Lenders of March 2024: Refinance Your Mortgage The Motley Fool Can You Refinance With No Income Verification in 2024? The Mortgage Reports Should I Refinance My Mortgage Now? When to Refinance As Rates Drop Business Insider What Credit Score Do I Need To Refinance? Bankrate.com Office of Research blog: A look at cash-out refinance mortgages and their borrowers between 2013 to 2023 Consumer Financial Protection Bureau The Sales Pitch for an 8% Mortgage: Buy Now, Refinance Later—for Free The Wall Street Journal How To Get The Best Refinance Rate Bankrate.com CFPB Releases Study of Refinance Mortgage Loans Between 2013 and 2023 Consumer Finance Monitor Should You Refinance Halfway Through Your Mortgage? Bankrate.com Mortgage Interest Rates Today, March 20, 2024 | Could Rates Drop After the Fed Meeting? Business Insider Mobile Home Refinancing | Loans & Rates 2023 The Mortgage Reports Mortgage Rate Forecast February 2024 Bankrate.com
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