I have received enough questions from borrowers to come to the conclusion that there are a large number of people who don't know what a mortgage broker is. Questions such as "Do you sell your mortgages, or can I set up a automatic withdrawals from you to pay my mortgage?" lead me to believe that there is quite a bit of confusion between mortgage brokers, mortgage banks, credit unions, banks and the differences in how each entity can or will loan money.
So to begin with, let's define what it is a mortgage broker can do. Mortgage brokers are entities similar to stock brokers or real estate brokers that have access to something a consumer wants - -money for mortgage loans. We are the middle man, the connection. But unlike a bank or a mortgage bank (a bank that only does mortgages and does not have depository accounts) or a credit union, we seek out and maintain relationships with different sources of money (investors) from what is known as a wholesale channel. Wholesale when it comes to mortgage money is exactly the same as when you think of wholesale food - - the resource from which grocery stores purchase the food that they sell in their retail outlets. In our case it isn't food, it's money. To make another distinction, we also do not have access to any source of money that is out there. For example I once had clients ask me to call JP Morgan Chase to see what rate and terms they would give. At one time we had a relationship with JP Morgan Chase wholesale but no longer. IF we do not have a contractual relationship with an investor we don't have access to their money.
To put is simply, various companies offer money for sale for mortgages. Some of these companies you may have heard of; Huntington Bank, Quicken Home Loans, Franklin American Mortgage Company, Fifth 3rd Bank. Many of these same wholesale companies have retail shops where a person can walk in, meet with a mortgage loan originator and apply for a mortgage.
What we at Tippecanoe Mortgage try to do is cull the herd to find the best lenders, who offer the best programs so that we can bring these lenders into our market to offer our clients options. When we select the investors we work with we try to find companies that can do different things for different borrower's unique needs. In the next series of blogs I intend to outline some of these different choices. We have found that consumers like choices, and one size definitely doesn't fit all.
Ouch! Looks painful. The point is, we don't try to cram you into something that doesn't fit, won't work or will result in frustration. So let's begin with the option of the day: THE 25 YEAR MORTGAGE.
One of the changes we have been seeing that has come out of the great recession is changes in the way people use their money. Many people are buying more affordable homes and are steering away from overspending on their mortgage payments. This is sensible. Losing one's home and plunging into financial disaster is not a situation that any of us like to contemplate being in. And for people who have been there who are once again getting their financial legs under them, tempting fate is not a consideration.
The most popular mortgage going is the 30 year fixed rate mortgage-but if you have more buying power than what you are planning to buy, why not contemplate a shorter mortgage? As a broker we can offer a 25 year amortization schedule. The good news is that your mortgage is shortened by five years, which means that your interest is reduced. Let's take review what that looks like:
The facts: 30 Year Conventional Mortgage at 4.375% on a $150,000 mortgage amount (5% down)
Principal and Interest Payment =$748.93 Monthly mortgage insurance + $77.50 Total interest paid over 30 years $119,613
25 year fixed rate conventional mortgage-
Principal and Interest @ 4.375% =$823.14 monthly mortgage insurance =$71.25 Total interest paid over the life of the loan=$96, 943.
Look at that! $22,670 in interest savings and only $75 more per month in mortgage payment. You will also note that you save a little on your monthly mortgage insurance as well.
Twenty five year terms aren't generally offered -but if you believed that the payment was affordable-why wouldn't you do that? Who couldn't use an extra $22 grand to put into a college fund or some other savings plan?
What is different about a mortgage broker? One word- options-choices. Oh, that's two words isn't it? No doubt about it we are a country of individuals and individuals like to have a choice. Tomorrow I will talk to you about another one.
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