Do you know the source of your mortgage money? It seems odd that we can take out a 450k mortgage yet be in the dark as to the source of our money. An understanding of where the cash comes from is the first step to understanding how the mortgage industry operates.
The source can come from one or two categories. On the one hand you have banks that recycle money that’s been deposited into personal and corporate accounts. That’s the individual’s money that the bank pays us interest on. In turn they lend that same money to those seeking mortgages and other types of loans.
Banks make money by charging -those seeking to borrow money- an interest rate.
They charge what’s called “a spread” between their borrowing interest rates and their deposit interest rates. Banks can even lend out more money than they physically have on deposit based on ratios federally regulated by certain governmental agencies.
The second potential source of mortgage money finds its way into the hands of borrowers via “investors” who provide money through Wall Street. These investors are actually money managers that are managing our own money. Most of us have investment accounts like Insurance Funds, Pension Funds and various Retirement Funds. Many of the accounts that contain all these funds end up housing huge amounts of cash.
Today, there’s so much money in the aforementioned funds that a lot of investors have widened their guidelines beyond the standard Fannie Mae or Freddie Mac requirements. This is happening through the competitive process. As a result of competition two things happen. First, that interest rates will get bid down as various investors compete for the business. Second, you’ll start seeing more and more innovative loan programs out there.
On the surface, it looks like all these mortgages come from a few established companies such as: Countrywide Mortgage, Wells Fargo, Chase or Bank of America. While these businesses are huge players in the mortgage business that doesn’t mean the money is all theirs. They package the loans and sell them on Wall Street. In many cases, you may not even know because they continue to “service” the loans themselves. That means they do the customer service, they collect your payments and they pass them on to the investor that holds the actual loan, less an administration fee of course.
To review, there are two sources of mortgage money and both are directly supplied by average citizens. Your bank deposits get recycled and lent back out to the community. Your investment, insurance and retirement funds also get recycled and lent back out. It’s all a big cycle -from our savings to our debts. Obviously, there are some very wealthy people out there who have huge savings and few debts. Others have huge debts and very little savings. But in the aggregate, it’s the entire community that lends money to itself and it’s the total amount of savings in the community that determines the interest rates within it.
To get a better grapple on the mortgage industry contact the mortgage mavens at Affiliated Mortgage. AM is vaunted as the best mortgage broker serving Phoenix area.
A home equity loan allows you to borrow against the value of the home in question. Equity is the amount the house is worth, subtracted by how much of your home loan you still own. With this simple calculation you find your home’s equity. This is a handy loan to tap into, but like every loan, your home equity will start accruing interest rather quickly. So how do you go about lowering the interest of your home equity loan?
When it comes to home equity loans, the interest rate varies greatly from lender to lender.
It’s common for a home equity loan to begin with an interest rate of approximately 6.675%.
Home equity loans provide great monthly installments, running from $150 and up. With this low payment the borrower is not going to see interest on the loan until you reexamine the statement and sees the principal is going down like a turtle.
After many years, homeowners frequently take out an additional loan to repay the equity loan. The procedure becomes costly over time because each loan taken out starts the principal at the start again. Every year your home is at risk of receding equity; nonetheless, equity loans seldom see negative equity. If negative equity exists, it can run to complications when going for a separate loan.
Home equity is a handy way to get your hands on easy cash, however a solid home equity will only be secured if proper research is put into finding one. For example, if you do not use a comparison of a number of lenders’ rates, you may find later on that you were able to get a better deal from another lender. When looking at a loan, remember security is the principle concern. Also look at the risks, capital, interest, penalties, and other points relating to equity loans.
Gather Equity Loan Information
Loans of all kinds restrict the amount lenders are willing to offer borrowers. Lenders consider your earnings whenever applying for loans. The lender will look at several details, including repayments, acceptance, and so on ahead of offering you a loan.
The lender will also take into account the equity of a home, signifying that the lender will regulate the amount he is wishing to loan you in relation to the equity of the home.
Mortgage lenders will also figure in surveyor fees, title, arrangement fees, legal charges and other charges when looking at a loan. The agreement fees are administration costs that will enhance the lenders salaries. Premiums, add on fees, and paid coverage guarantee the home will also be bonded to the loan.
Lenders will also need you to pay many different fees upfront if you are awarded the loan. There are ways around some of these fees. When in doubt work with your lender to prevent unnecessary fees.
Also, make sure that you have examined and noted the similarities or differences of a significant amount of loan rates and fees before you really accept a lender’s offer.
Dealing with a home equity loan can be a messy process. Allow the loan officers at Affiliated Mortgage to clean up the process when you consult them regarding home equity and other loan needs. Affiliated Mortgage is the best Sioux Falls mortgage company in the city and beyond.
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A Little About Affiliated Mortgage
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