Contrary to popular belief, bad credit mortgage loans still exist. However, they can be more difficult to obtain. Mortgages for those without good credit scores can be more expensive and entail varied terms. If you have bad credit, then it becomes even more important to shop effectively for your mortgage. Mortgages all have stated periods of repayment. Throughout time they usually were 30 years. More recently this repayment time frame began to be drawn out. Some extended to 40, even 50, years. Others had shorter periods allowing for quicker pay back. Most experts suggest a 30 year term. This often translates to a reasonable payment while allowing for appreciable principal reduction. Interest rates can vary. They are mostly all tied to main market interest rates. How much above this benchmark rate you pay depends on several factors. Your credit score is one of them. This is unfortunately one of the costs of having less than great credit. The good news is that refinancing is always possible in the future erasing the initial higher interest rate. Not only can they vary, but interest rates can also change. Some mortgages have what are called “fixed rates”. This means that the interest rate will remain the same during the life of the loan. Fixed rate mortgage loans allow for effective planning and budgeting. There are no surprises when the rate changes and your mortgage payment all of a sudden shoots up. Other mortgages have what are called “adjustable rates”. These loans have an interest rate which changes along with the market rate interest rate. With an adjustable rate one really never knows what the payment will be into the future. The advantage of an adjustable rate is the sometimes the initial payment is lower. However, this can quickly change resulting in a very high rate. This is especially so for mortgages with initial very low “teaser rates”. This loans can be especially dangerous and are heavily marketed to those with bad credit. Therefore, you need to be very wary of these mortgages. A very low initial payment is great. However, in a year, if it greatly increases you could be in a position that you can no longer afford your mortgage. This can obviously lead to a horrible result. Be wary of claims that you will be able to refinance at any point that the initial teaser rate shoots upward. Many borrowers were told this before and believed it. However, now they find they are unable to refinance because of declining property values. The result can be foreclosure. Obviously, you want to avoid this at all costs. Staying away from initial low teaser rate loans is a good step towards that end. There are bad credit mortgage loans available today. However, many can have nasty pitfalls. Make sure you are an educated consumer. Each bit of information available online can prove valuable and end up saving you money and heartache. Do your research, read the fine print, and avoid fancy or tricky mortgages and you’ll be a happy homeowner.
When is the best time to ask your borrower to sign your commercial broker fee agreement? There is some debate over this. Though, all seem to agree that it should be before the borrower sees a term sheets that you have collected. This may seem a small detail, it’s one of those little ones that can have a big impact on your wallet.
If you’ve ever heard a borrower say, after reviewing a LOI you delivered, “oh, I know this Bank. I’ve talked to them in the past. Well, why do I need you?” than you know what I’m talking about. If you haven’t, than keep brokering commercial loans and you will.
Some brokers advocate getting a fee agreement signed while they are collecting documentation. Others recommend getting the borrower moving first, start reviewing and qualifying the proposed deal, than when they are confident there is something to work on, asking for an agreement then. Other will take it a step further, and only ask for the agreement to be signed when they have been issued an LOI from a lender/bank.
Which is best? I don’t know and I guess it depends on the deal, the borrower and your style.
Some commercial mortgage brokers act as a combination of a broker and an hourly consultant. This is more of a traditional approach and will require additional steps and a more thorough sales process to get borrowers to agree. Often commercial brokers that conduct business this way will only work on an exclusive basis and essentially demand that they will organize and conduct the whole shopping process and no matter what, will get paid. This strategy does have its draw backs though, like being “stuck” on working on deals that turn out to have little chance of funding. And, it can be a very difficult arrangement to sell to the borrower to give up that much control.
The other strategies are really about getting the borrower “pregnant” first, i.e. getting them involved than “slipping” the agreement in at the appropriate time. There’s some disagreement on the appropriate time within this as well. For instance, do you present both the Letter of Intent from the lender and your fee agreement at the same time, i.e. present the overall deal at the same time? Others would say that you are putting yourself in a vulnerable position and that you should get the borrower to agree to the fee agreement first, than after signature, present the LOI. This strategy would probably be more fitting if there is a general state of distrust or just a beginning relationship.
Whatever you decide, don’t depend on mere words or emails to protect you fee. Get it in writing get a commercial broker fee agreement signed or don’t be surprised if you have issues getting paid.
If you’re in the business of originating commercial loans, you know how important it is to protect yourself. A commercial loan fee agreement is one of our most important tools. Going through the long and difficult process of underwriting and closing a commercial loan all to not get paid or only collect a portion of what you expected is one of the more painful and disappointing experiences you can go through in this industry.
We know. We have had several situations where we didn’t get paid, only got a portion of what we were told or did collect our fee, only after getting an attorney involved and going through a long and draining process.
Putting together a deal after hearing the funding bank saying something like “oh, we don’t have formal agreement with brokers, but we’ll pay you a point outside of closing” is like hoping to get paid back that $500 loan you gave to your high drop-out cousin. Sure, there is a chance you’ll get paid back.
Or if you’re working on a deal and not expecting to get any YSP from the bank and you’re depending on the borrower to finally sign that fee agreement, after they know who the bank is and what they are offering, is also a seriously weak position to be.
Unfortunately, we have had both “friends” as well as national lenders that we have work with for years short us at the end of the day. The reasons and stories behind these vary, but bottom-line – if you don’t have your commercial mortgage contract signed and in hand in the beginning of the process you are relying on their kindness to pay you. As my old boss used to say “I won’t walk across the street for a client without a contract”.
FHA mortgage loans were created in 1965 with the goal of promoting home ownership in America. FHA stands for Federal Housing Administration. FHA loans are administered through this department which is part of the Department of Housing and Urban Development (HUD). Even since this program’s inception millions of Americans have realized the dream of home ownership through it. There are many private mortgage lenders and always have been. Traditionally, lending standards were very strict. For a brief period of time they relaxed greatly, however they are quickly swinging back to what they were historically. Borrowers are no longer able to get “no money down” mortgages. Credit standards have tightened once again. The impact of these requirements is to effectively shut out many just starting life from the mortgage marketplace. Obviously, if you are unable to attain a mortgage this makes home ownership nearly impossible. FHA loans are meant to make mortgages obtainable for those who otherwise would be left out of the process. Most private lenders now require a twenty percent down payment. FHA loans, however, only require a 3% down payment in most instances. This is obviously a dramatic difference. It often translates to tens of thousands dollars less needed for a family just starting off in life to own their own home. It further serves to support the entry level price points of the realty marketplace. Most all private mortgages entail “points” or other closing costs. This further adds to the amount that must come out of the borrower’s pocket at closing. Many potential buyers can not afford these additional costs. FHA loans seek to solve this problem. FHA loans have the lender absorb half of these costs most usually and the remaining half is attached to the loan and paid over a long period of time. This saves the borrower thousands of dollars in out of pocket cash. That makes closing feasible for many who otherwise would not have funds to finalize the transaction. Another area which precludes many potential home buyers from getting a mortgage is a bad credit score. Lenders today have greatly tightened lending standards. Many with no established credit are therefore shut out for this reason. FHA loans seek to address this. There are much lower credit standards for an FHA loan. FHA mortgage loans allow many to own homes who otherwise wouldn’t be able to. Although not a direct lender, FHA enables the lending sector to make loans they otherwise would not be inclined to write. This opens up home ownership to many deserving Americans.
Many borrowers seek interest only home loans without truly understanding what they entail. Some assume the initial low payment forever remains at the stated amount. Others don’t understand the ramifications of the lack of principal repayment. Before you select an interest only mortgage make sure you fully understand the terms. For many years most all mortgages were of the same variety. They were thirty year fixed rate mortgages with even amortization over the course of the loan. Then came interest only mortgages. These mortgages allow for a lower initial payment. The flip side is a mortgage payment which can greatly increase to more than you can afford. This is obviously not a desirable outcome. Even more tricky are mortgages with interest only payments entailing a very low starting “teaser rate”. This is an extremely low interest rate given to the borrower for a short period of time during the first stage of the mortgage. Then, the interest rate goes up severely. Some teaser rate loans have increased from 1% to over 15%. These are generally traps ending in a foreclosure. Unfortunately, many unknowingly took out these teaser rate loans. The fact that they adjust significantly higher was buried in the fine print. Failure to read and understand all terms in a mortgage is a recipe for disaster. A home is most often the largest investment of your life. It is worth the extra time to research and fully understand the terms of your mortgage. With all interest only mortgages you do not pay down any principal until the interest only period ends. This can prove to be harmful. Having equity in your home can serve as a nice safety cushion. Additionally, should interest rates decrease into the future you might need that equity in order to successfully refinance into a lower rate. In some scenarios an interest only mortgage is wise. If you know you will only own the home for a limited time, such as under three years, then an interest only loan can serve to save you money. However, you must be fairly certain you are not going to own the home for any significant duration. Should this happen and your rate increase it could put you in a position not to be able to afford your mortgage payment. Those in the business of buying, rehabilitating then quickly selling houses see their returns on investment go up when using these instruments. Just like many objects, an interest only loan can be a great resource in the hands of some while being a dangerous weapon in the hands of others. Those reviewing mortgages of any type need to become educated on the process and all underlying terms. Interest only home loans especially should be scrutinized. Exercise care and caution when making the largest investment of your life. A few paragraphs within the mortgage documents could contain words which might seriously impact your life sometime down the road. Do yourself a favor and become a smart mortgage borrower.
The outlook for the mortgage market, appears to be gloomy according to industry figures.
Speaking earlier this week, at a conference for the mortgage industry in Manchester, Jackie Bennett, head of policy at the Council of Mortgage Lenders (CML), stated that there are fears that the situation in the UK, could be heading in the same direction, that the US mortgage market is, downward.
Bennett also quoted CML chief Steven Crawshaw, as expecting the level of mortgage lending to fall by half through 2008, with a 30 per cent drop in business activity among lenders.
Bennett said: “The appetite for lenders to top best buy tables has drastically diminished. Due to the servicing problems being top now attracts, lenders are fighting to avoid the top spot, rather than competing to be there.”
Bennett also stated the situation for first-time buyers, is similar to the mortgage rationing that occurred in the 1980s, when new entrants to the housing market found it almost impossible to secure home loans.
Many of those who have managed to clamber onto the property ladder in recent years are not out of the woods yet, however. There is a very real threat of repossession for those homeowners that will feel the financial squeeze of increase repayments as they come off attractive two-and three-year fixed rates over the course of 2008. Although, Bennett offers reassurance to homeowners fearing repossessions though.
She said: “Lenders are bound by regulation from the Financial Services Authority, which dictates that they must treat customers fairly.”
Economist John Wriglesworth, stated that things in the mortgage market won’t improve any time soon. He said: “The market won’t recover until the end of 2009. Within the next six months, lenders may revert to a model adopted in the 1980s whereby potential borrowers were expected to save with a lender for six months before a mortgage was offered.”
He continued: The one bright spot among all this is the fact that lenders want to attract more savings business to fund their mortgage lending. As a result, many banks and building societies now offer very competitive savings account. If buyers are considering putting their plans to buy or re-mortgage on hold until product rates fall slightly, it is probably worth, finding a good account that will not only safeguard their deposit, but one that will help it grow while they wait.
However, some mortgage providers, have seen positive situations within the industry. High street bank and mortgage provider, Abbey has reduced the rates on all their flexible and tracker-rate mortgages by 0.05 per cent, in addition to reducing some fixed rates by up to 0.17 per cent for borrowers with higher deposits.
A spokesperson for Abbey Mortgages said: “The current mortgage market poses an opportunity for financially strong lenders such as Abbey.”
The spokesperson continued: “Last month we announced a UK net lending share of 16 per cent and since then we’ve seen an exceptionally strong pipeline of new business, as well as continuing to benefit from the improvements we’ve made in retaining our existing mortgage customers.”
He concluded: “Abbey had already decreased rates on its flexible rate and tracker mortgages by 0.1 per cent in response to the Bank of England’s recent cash injection. This additional 0.05 per cent reduction anticipates future falls in LIBOR and will further support the Bank of England’s action in helping to bring liquidity back to the UK mortgage market.”
Lifestyles change and so do property loan products! You could be missing out on a great deal so book in for a regular Mortgage Choice property loan health check to make sure you still have the one most suitable for your needs.
Borrowers are becoming increasingly knowledgeable about the availability and benefits of using household equity to gain further assets or for debt consolidation, so refinancing continues to attract a large following as a market option.
The popularity of refinancing has been confirmed by the results of an Australian Bureau of Statistics report, showing approximately 25% of all property loans belong to consumers who have refinanced.
Reasons people use the equity in their properties to refinance can include:
Pay off a property loan faster and save on interest.
Accessing funds for renovating property.
Consolidating debts.
Buying an investment property, car or boat.
Taking a holiday.
Undertaking property improvements.
Buying shares.
Accessing funds for education; or
Simply looking at a cheaper property loan product.
The advantage of refinancing is to either obtain extra capital to invest in more assets, improve one’s lifestyle through renovations or additions to an existing property, or to put all debts into one single loan. This can be paid off monthly usually at a lower rate of interest, and more importantly, provide peace of mind.
Despite the advantages of refinancing, there are many important factors to consider before deciding to refinance your current loan. For example, switching loans may incur costs such as exit or break fees, application fees, loan stamp duty, registration fees, mortgage insurance and account fees.
Your Mortgage Choice loan consultant will be able to advise an estimate of costs relevant to you and establish the benefits and savings of switching loans.
A number of borrowers stay with their original loan product but are happy they’ve checked the market before making that decision. This could be due to costs associated with changing products or by changing loans they may be restricting themselves from other loan features (e.g. extra repayments, offset accounts and redraw facilities).
Before you consider refinancing, talk to your local Mortgage Choice loan consultant who can:
Establish why you want to refinance.
Confirm the following aspects of your existing loan: current interest rate paid and type of rate (variable or fixed), ongoing fees on the loan account, what features are currently available e.g. redraw, offset, lump sum reductions.
Determine the costs of refinancing - it may be cheaper to keep the existing loan, rather than pay additional fees such as those above.
Decide what aspects of the loan are most important, i.e. do you want the cheapest loan no matter what? What features do you need as opposed to want?
Consider options from all types of lenders - the best option may be from a lender you are not familiar with.
Go over future requirements - how flexible will the product be if your plans change?
With the constantly changing market of lenders and products, together with individuals changing personal circumstances, it is recommended you undertake a free Mortgage Choice home loan health check every one to three years and seek professional property loan advice before making the decision to refinance.
It used to be the first choice of majority borrowers, because since the total payments are spread over a longer range of time with the mortgage interest rates set for the entire time of mortgage. 30 year home loan rates are an industry standard but is it the right option for you?
As we discussed, the advantage side for a 30 year home loan is lower monthly payments. This attraction is somewhat dimmed by the truth that you pay thousands extra in interest. However, your interest is 100% tax deductible which does reduce your after tax cost. It provides you some flexibility so that if your financial condition changes and you have more money you can pay it off in less than 30 years, this while keeping the low monthly payments and mortgage interest rates. Your payments are smaller so in reality you can buy a larger roomier home.
To give you an example of the interest difference between 30 year home loan rates and one of the other rates. On a 30 year, 100,000 dollar loan utilizing 7% interest rate your monthly obligation of interest and principle would be $665.30. Over the next 30 years you will have a payment of $139,511.04 in interest alone. On the other hand, with a 15 year home loan rate on the same amount you will pay $871.11 per month and over the next 15 years, you would pay $56,799 in interest. This would make a saving of $82,712 for you.
If you have the will power to invest the savings from the monthly payments, it still could be a good decision to go with the 30 year mortgage. Particularly if you can find an investment that the long term payoff matches or exceeds what you would save in a 15 year mortgage. Another constraint to consider is how fast you want to accrue equity in your home or to own it out right. 30 year home loan rates take much longer to have equity built.
30 year home loan rates are certainly attractive and the vast majority of home buyers acquire 30-year loans because that is the longest home loan available in the present time. Experts agree if they could acquire a 35- or 40-year loan, they probably would. There are several other alternatives to consider. Probably the biggest question you have to ask yourself when trying to consider a loan is what are your financial goals? What loan plan will help you the most to reach that plan? It is clearly to your advantage to look into other personal loans or home loan alternatives for the best loan available for you and your financial goals. It may surprise you that because of your personal situation there may be other plans more advantageous for you.
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