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Point Goes to Mortgage Brokers

Posted by  on May 18, 2010
 
The most common question asked when shopping for a low mortgage is about the interest rate. Many mortgage brokers get asked this before being asked about their services. What these people do not realize is that there is not just one interest rate; there is a choice of interest rates, mortgage rates that vary from one lender to another. More often than not, these rates are very similar, sometimes even identical.

Because mortgage rates change almost on a daily basis, and vary among borrowers, it is a constant task to keep updated with the mortgage market. Each day, the mortgage lender gets one or more rate sheets. Mortgage bankers get their rate sheets from their companies. Mortgage brokers get their information from a number of wholesale lenders. These rate sheets are private, as they contain different information for different buyers. They are not designed for public view because they only represent the cost of a home loan for the loan officer, not the cost that will be given to the buyer. The mortgage company is given data on certain home loans, for example a 30-year fixed rate loan, based on a point value system. The rate sheet will show the interest rate and the cost of the loan, in terms of points. One point is equal to one percent of the loan. For example, if the fixed rate is set at 6.250%, the cost to the mortgage company will be 2.000 points, meaning, whatever the loan costs, it costs the mortgage broker 2 percent of that. Zero points is known as par pricing. Numbers that show up in parentheses, indicate a rebate that will go back to the mortgage loan officer and the branch for originating a loan at that rate.

On some days, these rate sheets can be adjusted to either a more realistic or more profitable sheet for the mortgage broker. The market is changing so rapidly that it is not surprising to see rate sheets revised more than once a day.

Different mortgage rates have different costs. Higher mortgage rates turn out to cost less than lower rates. This is because the mortgage lender is going to earn more in interest over the life of the loan, so charging less makes no big difference. On the other hand, it also makes sense to charge more for a lower interest rate, seeing as how the mortgage lender will make less in interest.

Almost all mortgage loan officers are paid on commission. The amount earned by the loan officer could result in a split, in which part of the loan goes to the loan officer, and the other goes to the branch.

Before quoting an interest rate, the loan officer will add on how much himself of the branch want to earn. There is a policy established that states a minimum that is added on, but has a max as well so the borrower is not overcharged. Between these to limits, the loan officer has a great deal of flexibility.

So, when a quote is requested by a mortgage lender, and they decide they want to earn one point, they will add that to the quote when reviewing costs with a borrower. Often what happens with a no-fee, no-point mortgage, the loan officer has already added the fees and points, so that it seems like a steal, but a higher interest rate is paid.

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