We are letting down existing borrowers

Given that even a hint of a change to (BBR) over the past seven and a half years has been rare, you can fully understand why the market has taken such a keen interest in MPC pronouncements over the past couple of months. This month’s cut to Bank Base Rate was widely anticipated but still seemed rather momentous given the lack of movement over that period.

The suggestion from many commentators is that the cut will herald something of a ‘new age’ for the remortgage market, which (we are told) has been waiting on a BBR move – in either direction – since January 2009. Whether this becomes reality is another matter, and will of course depend much on how lenders react.

That said, there are a group of borrowers – whose true size we are yet to get a full handle on – who will find themselves stuck in the same position regardless of whether rates fall or rise. These ‘mortgage prisoners’ appear locked in limbo, some for unfathomable reasons, and it was therefore no surprise to see the Association of Mortgage Intermediaries (AMI) recently hitting out at both the regulator and lenders for what they see as inertia when it comes to helping these borrowers move away from their current (often SVR) rates to those which are far more competitive in today’s mortgage market.

AMI puts the ‘mortgage prisoner’ number at somewhere near one million and says that in certain sectors there are great swathes of borrowers unable to do anything but stay put. These include (perhaps unsurprisingly) interest-only borrowers, those who want to borrow into retirement or are currently in retirement, the self-employed and contract workers, foreign currency workers (whose product access has been hit considerably by the changes brought about by the MCD), and expatriates.

While AMI believes these borrowers are the worst affected in this post-MMR environment which brought in far tighter affordability measures, there are of course what we might call, ‘standard mortgage holders’ who have also been turned down for a remortgage despite the fact the transitional arrangements brought in by the MMR were designed to allow lenders to smooth their path. Of course, this is only for those not wishing to add to their borrowing, but even now it seems incredibly odd that a borrower who is currently affording their higher monthly mortgage payment, is still being turned down by a lender for a product which would actually see them with a less costly mortgage.

Now, of course, to give the FCA a fair hearing it has been very vocal in urging lenders to use the transitional powers as set out and to ensure borrowers are not left on rates which clearly disadvantage them, when (technically at least) they should be able to remortgage to a more competitive rate. However, turning theory into practice is a rather different situation, and you can (sort of) understand why lenders are cautious – perhaps far too cautious – when it comes to determining affordability under the MMR rules, rather than those in place beforehand. After all, the regulator’s train of thought is on tightening affordability/underwriting rather than loosening it.

That said, something has to give and there has to be a considered appeal to lenders to treat customers fairly in these circumstances. The FCA appears to be suggesting that because it has only looked at those customers who had mortgages approved, it’s not in a position to comment on those who were turned away. This clearly needs to be changed, because as any intermediary will tell them, the numbers of rejected borrowers are substantial and, while they are living through a period of ultra-low mortgage pricing – which has just got lower – they are not able to benefit from it.

One can understand the situation where the existing borrower wants to borrow more – of course the necessary affordability checks need to be maintained – but a simple product transfer or remortgage to a new lender should not be out of the question for those who simply want to move to a different product/rate. AMI appears to be calling for this situation to fall within the regulator’s review of responsible lending, and it’s hard to disagree. At the moment we as an industry are letting down existing borrowers who could, and should, be allowed to move. It’s time we rectified this.

source: mortgageintroducer.com

What is a Mortgage Broker?

At some point in the mortgage process, you might find yourself wondering what a mortgage broker is, and why you might choose to work with them.

Who they are

Put simply, a mortgage broker is a middleman between the borrower and the bank or mortgage lender. They’re kind of like a borrower’s Sherpa, leading them to the summit of the perfect loan.

It doesn’t matter if a client is looking to refinance or purchase a new home, the mortgage broker will do their part to help them qualify. Just remember that since they are a middleman with no affiliation to anyone except themselves, they will inevitably take their slice of the pie (more on that later).

What they do

The first thing they will do is gather all of the necessary information. That means income, asset, and employment documentation, plus a credit report. The mortgage broker will then look over all of the borrower’s information and decide what the best way to obtain financing will be. This means, they’ll advise the borrower on the loan amount, the loan-to-value ratio, and the type of loan.

When the specifics of the loan have been decided on, the broker will submit the loan to a lender they work with to gain approval. Throughout the process, the broker will talk with the bank and the borrower to make sure both parties are on the same page.

Pros

One of the major benefits of using a mortgage broker is that they can shop around with multiple banks and lenders to find the best rate/loan program. This is in contrast with a loan officer, who’s confined to the lender they work for, so if you get declined that’s the end of the road.

With a mortgage broker, if a borrower gets declined they’ll just move on to another lender. It’s also possible that a mortgage broker will be working with fewer clients, and will therefore be more available for any questions/concerns a borrower might have.

Cons

In reality, there’s no guarantee that they’ll search high and low for the best loan. It’s entirely possible that they’ll steer the borrower toward a loan that makes them the most money.

It’s important to ask for multiple quotes from as many lenders as possible. Of course, the only way a borrower can be sure they are getting the best deal is to do their own research.

How they make their money

There are a few different ways a mortgage broker can get paid. Typically, they charge loan origination fees and/or broker fees. This usually amounts to 1-2% of the loan, and can either be paid up front or added into the loan. Because of the Dodd-Frank Act—no hidden fees are allowed—the broker must be willing and able to tell you exactly what each and every fee is for.

source: totalmortgage.com

Should You Refinance with Your Current Lender?

Refinancing a mortgage is essentially getting a new home loan to replace an existing one. Some people apply for new financing to lower their interest rate, change their mortgage terms, remove a name from a mortgage or tap their equity. However, after you decide to refinance, the next step is choosing a lender.


Just about every bank offers mortgage refinancing, and many lenders will vie for your business. You can apply with any bank or mortgage broker, but there are good reasons to refinance with your existing lender.

Potentially receive a better mortgage rate

Mortgage lending is a competitive business, and if you’re a long-term customer, the bank undoubtedly wants to retain your business. For that matter, refinancing with an existing lender can potentially result in a cheaper mortgage rate. This doesn’t mean you shouldn’t shop around and compare rates with other banks. You never know, a competitor may offer a better deal. If your existing lender is determined to keep your business, the bank may agree to match your best quote.

Streamlined process

Since you have a history with your lender, refinancing with the bank might be quicker than refinancing with another financial institution. Mortgage lending requires a lot of documentation. This includes tax returns, paycheck stubs, bank statements, and information about your various other assets. It can take days to gather your documentation, and it takes additional time for the mortgage lender to review this information. To accommodate existing customers, many banks streamline the approval process. They might request fewer documentation, resulting in a faster process.

Fewer closing costs

Closing costs average two percent to five percent of the loan amount, according to Zillow. And unfortunately, this is one costs many don’t consider when refinancing a mortgage loan. You can pay this expense out-of-pocket, or the lender can wrap closing costs into your new mortgage loan, increasing the total loan balance. Refinancing with an existing lender can prove cost-effective because the bank might eliminate a few mortgage-related fees, resulting in cheaper closing costs. For example, they might waive the appraisal, the title search fee or reduce the loan origination fee.

Avoid a prepayment penalty

A prepayment penalty is included with some home loans, and the purpose is to deter a borrower from refinancing the mortgage before a certain amount of time has elapsed — typically two to five years.
If your mortgage has a prepayment penalty and you refinance during the penalty period, the bank might charge a fee, such as six month’s of interest. This is a tactic used by lenders to stop mortgage borrowers from going elsewhere too soon. This way, the bank can recoup some of their investment plus interest. But if you refinance with an existing lender, the bank might waive the prepayment penalty since you’re remaining a customer.

Bottom Line

Refinancing can help you secure a better, cheaper mortgage. You don’t have to stick with your current lender, but there are sound financial reasons of doing so. Understand, however, that to enjoy the perks of refinancing with an existing lender, the bank must own your loan. If the bank sold the mortgage to a third-party lender, it has to adhere to this lender’s refinancing guidelines, in which case you may not receive the same benefits.

source: totalmortgage.com