A New Choice for Home Financing: Correspondent Lenders

When you begin your search for a new home loan, one of the first things to consider is where you'll get the money. Your basic choices will be mortgage brokers and banks.

Your first instinct may be to go with your local bank, who you know from doing business with them for other things, such as your checking and saving accounts. But you've probably also heard that mortgage brokers can get you a better interest rate, since they deal with hundreds of lending sources. It can be confusing, but there's a third source of funding that combines the best of both--the correspondent lender.

In order to understand the differences, let's look at how the lending process works in each case. Mortgage bankers are given rate sheets by their institutions, telling them what interest rates they can quote to their clients on any given day. There's only so much a bank can do, with regard to interest rates, because it needs to remain profitable in order to stay in business.

Mortgage brokers have an advantage in that regard. They're not loaning their own money, and are free to "shop your loan around," looking for the best terms from various lending sources. They make their money by getting loans at discount prices and then marking them up, making money on the difference. Since they have many sources to choose from, they can often find loans at lower rates than most banks.

The third alternative, correspondent lenders, combines the best features from both groups. Correspondent lenders are similar to mortgage bankers in that they make the lending decision and fund the loan with their own money or credit line. However, as soon as a loan has closed, it's sold to another lender at a previously negotiated price. It's the best of both worlds for you as a borrower. You'll be dealing with the banker who is funding your loan, yet that banker is able to shop your mortgage around, which can obtain you a lower interest rate.

Correspondent lenders can sometimes be difficult to find, since they're generally smaller institutions, operating on a regional basis, and it can be hard to tell whether a lender is a broker or a banker, based solely on the company's name. One way to find out is by visiting the lender's website, if they have one. You'll normally find a button you can click that will bring up a page containing a detailed description of the company. If the lender doesn't have a website, you may find their phone number in the Yellow Pages.

Although they may not always be easy to locate, with a little digging, you may find that a correspondent lender offers an attractive alternative to a banker or mortgage broker when it comes to shopping for your next home loan.

Are Biweekly Mortgages Really Worthwhile?

You may have heard people, especially mortgage lenders, extolling the virtues of biweekly payments, saying that you can save thousands of dollars and take 5-7 years off your mortgage--and then offering to set up a biweekly plan for you for as little as $400. But you don't have to spend $400 to begin saving money and time on your mortgage. In fact, you don't have to spend anything at all! You can set up a money-saving mortgage payment plan yourself--easily and at no extra cost.

The key is to look carefully at the fine print in many biweekly plans. You find that even though you'd be making biweekly payments, the lender may only post them to your account on a monthly basis, which means that you wouldn't be saving anything on interest, because mortgage interest is paid in arrears (as opposed to rent payments, which are paid in advance). Your only real savings would be in the fact that you'd be making the equivalent of one extra payment a year. That's a good thing, of course, but you don't need to pay someone $400-500, possible monthly maintenance fees, to be able to accomplish the same results.

Here's how biweekly payments save time and money: By making biweekly payments, you actually end up making an extra monthly payment each year. Over the course of a year, you'd make 26 payments (one every other week for 52 weeks), which is the same as making 13 monthly payments. Making one extra payment per year will shorten the life of your loan and save you thousands of dollars.

But you don't have to make biweekly payments to obtain those savings. Here are a couple examples of how you can save big money, using the same basic idea:

If you get paid every two weeks, divide your monthly principal and interest payment in half and then send your lender a check for that amount during those months in which you receive three paychecks. Just sending in those two extra checks will be the equivalent of one extra payment a year.

If you don't want to send lump checks, you can get the same results by dividing your monthly principal and interest payment by twelve and then adding that extra amount to your payment every month. Normally, that figure won't put too much extra strain on your budget, and it will add an extra mortgage payment to your loan every year.

You really can save significant amounts of money and shorten the life of your loan by making extra payments, but you definitely don't have to pay a lender $400-500 to do it. Making those extra payments is easy to do yourself, and at no extra charge--which is always a good thing.

Total Cost Of Credit vs Monthly Payments

I read a press release the other day which points to the fact we need to be very careful with our finances. The subject of the release was home mortgages. A company was announcing the availability of 40 year mortgages for its customers. The stated purpose was to lower the monthly payments to make buying a home more affordable.

Whenever I hear the phrase "more affordable", I put my hand on my wallet because the attempt to empty it will begin any moment. Almostnever is that phrase used in relation to the total cost of financing. It isalways used in reference to the size of the monthly payment, as in this example.

Let's see what it really means. I did the math. A mortgage for a $100,000 home at 6% for 30 years would have a monthly payment of about $600 for principal and interest. You would pay about $216,000 over the life of the loan of which $116,000 would be interest..

A mortgage on that same home for 40 years would be at 6.25%, with a monthly payment of $565. The payments over the life of the loan would total about $271,200 and $171,200 of the total would be interest.

The forty year mortgage has a higher interest rate (usually between.25 and .50 percent) because the lender has his money at risk for a longer time (Lenders are well aware that time is money. You should be as aware).

This higher rate coupled with the extra ten years of the loan, has the borrower paying 47% more interest, or $55,000 more over the life of the loan. Even with a lower payment that supposedly makes it more affordable to purchase that home. Sounds like a pretty good deal for the lender.

Another problem the borrower faces is building equity much more slowly in the beginning of the loan. The extra interest expense paid for the extended length of the loan prevents equity from building up quickly. All of this for a monthly payment that is only $35 less.

You need to think in terms of overall cost and not just monthly payments. The total cost is what you will give back to your creditors. The focus on the monthly payment takes attention away from the total amount to be repaid. You need to look at this with any indebtedness, car payments, personal loans, credit cards: figure the total cost, not just what you pay each month.

You'll begin to hear more about these loans I'm sure. Think long and hard before you lengthen your indebtedness. The goal is to become debt free and to do it as fast as possible. Advise your families and friends to do the same.

How Good a Deal Is Your Banks Mortgage Insurance Plan?

When you go to the bank to get a mortgage, you'll inevitably be asked to take out mortgage insurance. The idea behind mortgage insurance is simply that if something happens to you or your spouse then your loan will be paid off which is good news for your family and the bank. Most financial institutions act like they are doing you a favor by offering you mortgage insurance through their own group plan, but are they?

The truth is that you could probably get a much better deal and at least an equal amount of protection by shopping around for your own insurance policy.

Essentially, mortgage insurance is no different than term-life insurance. With both, your policy only lasts for a specified period of time and pays its benefits if something happens to you or your spouse. The real difference comes down to how much control you'll have over your policy and how much you'll pay for it.

If you choose to use the mortgage insurance offered by the bank, you will not be able to customize a policy to fit your needs and you'll be lumped together with other borrowers under a group plan. Because of this, you will only have limited control over your policy. For example, through a third party provider, you would be able to choose your own beneficiary, decide how to spend the proceeds if necessary, and cancel the policy at any time. You would not have these options with a lending institution.

Additionally, the bank maintains the right to not renew your policy and to cancel the policy when you sell the house. If you find your own insurance provider, you can make those decisions yourself.

The other big difference is cost. A third party insurance policy's premiums will not go up, so you would pay the same premium today that you'd pay ten years from now. You won't get that same guarantee from a bank which can and probably will increase your premiums during the life of the policy. In most cases, you'll probably pay more through a bank anyway. In fact, you could pay as much as 40% more than you would if you shopped around and found your own insurance provider. Not to mention that the policy you take out through your bank will gradually decrease in value while a plan you select from an outside source will be worth the same amount during the entire policy period.

Of course, many people don't mind paying more for their mortgage insurance because it's more convenient than dealing with insurance agents. The truth is that you can easily find a policy that fits your needs and provides affordable premiums via the Internet. An organization, such as the Hughes Trustco Group, can even generate quotes for you from multiple insurance providers so you'll know that you're receiving the best deal possible on the policy you want.

The bottom line is that mortgage insurance is important and should be part of your home buying or refinancing preparations, but that does not mean you need to pay more or let the bank make important decisions for you. Instead, you should find your own personal plan from a third party provider which will let you stay in control of your policy and will save you money in the long run.

Bankers Dont Want You to Know That You Pay for Your No Cost Home Loan Forever

With mortgage rates continuing on a downward trend, the competition in the business is fierce. A day never passes that I don't hear some crazy advertisement about a new loan program that XYZ mortgage company has and no one else offers. One of the oldest programs remains steadfast in both its high profile and its duplicity. This program is the No Cost Home Loan -- the one bankers say is free, but you actually pay for as long as you have the loan.

The no closing cost home loan is virtually everywhere. It is advertised in the mail, on radio and on TV all the time. "Hey, refinance your loan today, and there will be no closing costs," the ads scream. Wow, a free loan. Imagine the money you'll save. So, if you are in the market for a refinance loan or home equity line, which you probably should be, with rates at all-time lows, you might consider running to XYZ mortgage company, who is now offering free mortgage loans.

Just be careful you don't go bankrupt, along the way. Remember, the old cliche, Nothing in life is free, because it makes a lot of sense. You actually can get a mortgage with little or no closing costs. What bankers don't tell you (one of their great secrets) is that you pay a higher interest rate than you really qualify for, when you get your loan for "free." So, you might save $2,000 or $3,000 in closing costs, but your monthly payment could be $100 to $300 higher than it would have been if you had actually paid the costs.

Imagine taking this loan and saving $2,000 in total closing costs. Perhaps you borrow $200,000. Now, if you simply pay all the costs and tell the banker you want the best rate available, let's say it is 6% for this example, you would have a monthly payment of $1,199. Now, let's assume the wiley banker convinces you to pay no closing costs and take an in terest rate of 7%. He might say, "Now, your interest rate will be a bit higher, but you'll save $2,000 in closing costs." Sounds great, you might think.

What he doesn't do, though, is spell out the difference in the 6% rate you could qualify for, versus the 7% rate you choose to take for your "free" loan. If you borrow $200,000 at 7% interest, your monthly payment is $1,330. This is $131.00 more each month than you will pay on the same loan at 6% interest.

If you choose to pay the closing costs and save $131.00 monthly, it will take you 15 months to get your $2,000 in closing costs back. Now, if you keep this loan for five years beyond that first 15 months, you will save an additional $7,860 at the 6% interest rate. If you listen to the crafty banker, selling the No Cost Loan, you'll allow nearly eight thousand dollars to drift right up your home's chimney.

Unless the difference in the interest rate on your no closing cost loan and the loan with costs is a tiny amount, say .125%, you are almost always better off paying the costs. Be sure to ask what the difference in the rates is. Then learn exactly what the total closing costs will be. Calculate the difference in the two monthly payments (one with closing costs and one without). If that amount will pay back your closing costs in two years or less, and you intend to remain in your loan for at least five years, pay the costs and take the better rate.

Selling Your Business Note

Before I go further, let me ask a question- if you won the lottery tomorrow, would you take the payout in a lump sum or in monthly payments?

Most people would take a lump sum because even though it might be less than the total prize, they would have control over a large sum of money now and could let the time value of money go to work and increase their winnings.So why then would you opt to get paid on your business sale over several years rather than take a lump sum payout?

The answer is probably because you didn't know that you could get cash for your business note. Peacock Capital can help you to sell your business note at a discount and cash out now, rather than later.

Advantages to sell your business note include:

? Walk away from a business you didn't want without having a financial anchor still attached to you for the next several years

? Use the balance owed to you to fund a new business, pay off debts or finance education for yourself or your loved ones- now!

? Avoid the risk that the buyer will default on the loan

? Avoid the risk of the buyer going bankrupt

? No need to wait for monthly payments

If you are going to sell your business, the following criteria should be structured into your note so that it will be more attractive to investors for purchase:

? Down payment of 30% or more

? Personal guarantee from the buyer

? Short term financing - the shorter the term the better

? Minimal seasoning of the note is needed - usually two months at least, depending on the type of business.

A note for a business that has substantial tangible assets will be easier to sell compared to one that does not - example: machine shop versus a coffee stand