How does a Mortgage Broker get paid? First lets clarify some mortgage lingo of what a point is. A point is 1% of the loan amount. An example of this, is if your mortgage is $100,000, 1 point or 1% would be $1000. Mortgage Brokers or bankers commissions are usually expressed in points.
Now that we have that clear.
There are 4 ways in which you can pay your Mortgage professionals.
1. You can pay a commission usually expressed in points at the close of escrow with out of pocket monies.
2. The broker/banker can collect a commission from the bank, based on your interest rate.
3. A combination of #1 and #2.
4. If you are purchasing a home your Realtor can negotiate in your contract, to have the seller of the home pay some closing costs. These monies can be used toward mortgage costs.
Lets look at the mock interest rate structure. This is an example of what a interest rate sheet might look like. This is rough but it get the point across. **This is only an example!**
6% you pay a point
6.25% bank pays 1/2 point and you pay 1/2 point
6.5% bank pay a point
If we apply the 4 ways that I can get paid you will be informed enough to make a decision that is best for you.
# 1 You can pay an up front commission, which would be 1 point or $2000 and get the 6% interest rate. The advantage to paying a point is that you are not paying the higher interest rate for 30 years. Let's sat the difference between 6% and 6.5% is $100. You will be paying an additional $100 per month for 30 years. Which over the life of the loan will cost you thousands. Instead, you are paying a one time commission. The disadvantage is, if you are scraping every cent you have for your down payment and closing costs, it is another added expense.
#2 You can pay no points and pay an interest rate of 6.5%. The advantage is the cash savings of 1 point or $2000. The disadvantages is that you will be paying .5% more on your interest rate for 30 years. Which as I showed in the first example can add up to thousands.
#3 You can do a combination with the bank paying 1/2 point and you pay 1/2 point. This saves you $1000 and lowers your rate .25%. However, you are still paying .25% more for 30 years and $1000.
#4 When you are buying a home closing cost concessions by the seller can be a very powerful tool to help you attain the best interest rates. If for example you were able secure closing costs to lower your interest rate you could pay 2 or 3 points without money out of your pocket. 1 point would go to the broker and the other points would go to the bank to buy your interest rate down. This is called an interest rate buy down. This can be very effective to bring you payment down significantly. This can often make it easier to qualify and you can buy more of a home, because you would need to make less income. The buy down can be very effective when buying a home when the seller is paying closing costs.
Quite often clients are strongly against paying points. But you should look it as an investment in your mortgage. If you pay up front to save or make you thousands in the future it quite often is worth it.
But, if you communicate with your mortgage professional, do the math, review you personal goals, your financial situation and future plans. Together you can come up with the best plan of action.
If you would like further information on the interest rate buy down, or you have a question you would like me to answer. Please contact me at 831-801-8667 or email at kwoeste@milestonemtg.com
Also, wanted to let you know I am donating 10% of my commission to schools. I will donate the money in your name, to the school of your choice. Otherwise I will be rotate among the local schools.
Keith Woeste, Milestone Mortgage 831-801-8667, kwoeste@milestonemtg.com
No comments:
Post a Comment