Refinancing
Choosing a wholesale lender for your next mortgage will allow
you to take advantage of wholesale mortgage rates, something you’ll
never be able to do with a bank. The problem is that the average
homeowner cannot access wholesale mortgage rates directly; members
of the pubic must rely on mortgage brokers for access to wholesale
mortgage rates. Your mortgage broker is basically a salesperson
that sells loans for wholesale mortgage lenders. Mortgage brokers
are compensated by charging origination fees for their services;
however, they also take kickbacks from lenders for charging above
market interest rates. Here’s an example of a typical brokered
refinancing transaction with unnecessary interest rate markup.
Suzie is a typical homeowner. She’s decided to refinance her $300,000
mortgage and take cash back from her home equity to pay off her
credit cards. Suzie is worried about getting a good deal on her
mortgage rate and her broker has convinced her that a thirty year
fixed rate mortgage at seven percent is the right loan for her.
Suzie thinks she’s getting a good deal because the broker is only
charging her one percent for the origination fee. What Suzie doesn’t
know is that the wholesale lender approved her for 6.25%.
A significant decrement of interest rates in the early 21st century
was one of the major factors that led to a growing number of refinancing
applications. This boom in the number of borrowers who are interested
in refinancing their existing mortgage loan still continues. Following
are the reasons why most of the borrowers have started to consider
this option seriously. • Savings that new loan could bring you
could be significant. In case the current interest rates are lower
than the rate on the existing loan, the savings brought to you
by the new loan could be very significant. • Besides, savings
that the new loan could bring you prove to be significant also
when your adjustable rate mortgage is set to adjust upwards soon.
• By applying for the refinancing process, some fresh cash can
be obtained from equity build in home and this can be then used
for all the major expenses like children education, renovation
of the house, etc.
1. Know Your Goal Before you can make a wise decision, you need
to clarify for yourself exactly what you want to accomplish by
refinancing. Are you looking to save money monthly or consolidate
debt? Are you planning on doing home improvements? Remember that
certain mortgage options are better for achieving certain goals.
2. Make Sure the Benefits Outweigh the Costs Obviously, refinancing
is going to cost you some money upfront. You need to ensure that
what you are getting from refinancing is worth the costs associated
with the process. When refinancing to save money, you will want
to make your closing costs back in less than three years. Also,
if refinancing to do home improvements, find out if the improvements
are going to improve your property value enough to make the work
financially valuable. 3. Make Sure You Don’t Have a Prepayment
Penalty (PPP) Before spending money on a refinance loan, double
check that your first mortgage does not have a prepayment penalty
that could cost you several thousands of dollars on top of the
closing costs of your new mortgage. If you do, in fact, have a
prepayment penalty, you will most likely want to wait until the
PPP term expires.
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