saphire
you are right about the fee some brokers charge a very high amount. You sound like me "why pay someone to do what I can"
What was called my Credit Union, my insurance company (USAA they also do mortgages) and "picked their brains" and asked the to give me an estimate of their fees.
I knew my credit score(this is a must do,pull it before you start)so they were happy to provide me the information.
What amazed me was the big difference in closing costs between them and the builders mortgage company. We are talking $6k.
The nice thing about doing it this way is noone pulls your credit untill you have narrowed it down to 1 or 2 companies.
As much as you want to give someone you know business, unless he is willing to "waive" the fee that is how brokers make their money.
I know this may sound weird but I think of mortgage shopping as car shopping just more money involved :)

Thanks, I have read your posts and we are very much alike, I often get credit card companies to waive fees for fun! I love car shopping too and do not let DH set foot in a showroom until its time to sign the papers

Calling around and asking for fees and expenses was how I got my mortgage pre internet. The only way I got slightly screwed last time was that one local bank was advertising a great rate for a specific period. What I did not realize until I went in person with my tax returns was they had very strict income requirements (old days!) because they were a small local bank and we fell a little short (we made it based on 36% or 33% (with had no other debt but not on 28% or something like that). So I ended up waiting and lost out on the absolute best rate at the bank we chose because their rates had gone up a little in the interim

I have wondered how mortgage brokers make their money, they claim they get paid by the bank. Interesting to know that the closing costs are usually higher which is where their fee is. Frankly I never understood why people use them

I have a good friend who has a FICO score over 800 (I know even her mortgage broker could not believe it) who bought in NYC years ago. She used a mortgage broker because that was what everyone told her to do and did not have a good answer when I asked why. When she refinanced a few years later she used ELoan or Lending Tree and ended up negotiating something even better with the lender

Thanks for your response

We used a broker for our last mortgage. Not a single bank or mortgage company in our town could beat the deal he got for us. We didn't lock in until a couple of days before closing, so the local guys really tried, even forgoing their fees. Still couldn't do it.

The broker has the ability to get rates and loans from all over the country, while our local guys could only take the rates from Wells Fargo. With phones, faxes and email it's really easy to use a broker from anywhere. We are in Alaska and our broker was in Florida.

Gloria

Hi Saphire,

Assuming you are not a neophyte, this is not your first home and know the difference between interest only, no doc, no income and jumbo fixed rate and variable apr
Is it worth going through a mortgage broker or should I just look on the internet and in my local paper and call around?

HERE'S the thing... you want to have the sharpest, best INDIVIDUAL PROFESSIONAL handling your finances. It doesn't matter if they work for a brokerage, a credit union, or a retail banker. EVERYONE 'potentially' has access to all the same final loan programs (though not all are aware of that, or understand them all,) and the same final costs of money (though some aren't allowed access to the actual wholesale rates, such as retail loan officers.)

My patent rant;
Choose your provider according to preliminary "quotes,"
And you've simply chosen the most successful Liar.

Choose according to character quality, competitiveness,
honesty, and your personal assessment,
And you will set yourself up for the better Experience AND
the better bottom line pricing!

By the way... lest you doubt me... when I have to get financing on my own properties (as I now own a small few, and have a commercial office complex under development,) I do not "DIY" my own financing most of the time. I shop out the most competent Loan Officer I can find (and they either better know more than me, or BETTER be willing to shut up & listen to what I tell them! LOL! ;~)

The reason I have others do it?
A) The best financing terms are usually niche programs... (alternatively, the "vanilla 30 yr FRM" is generally the most expensive & wasteful choice,) and different Professionals specialize in different areas of the industry niches,
B) Liability-wise... I am usually approved better when I am not originating my own financing. I realize this means little to "Saphire-on-the-street"... except I would propose that trying to DIY with call-center or front-desk retail loan officers out of Bankrate, et al... would simply be playing with fire.

BTW... if you Google "Lending Tree lawsuits" and see the legal issues they (and Bankrate) have been hit with, you'll be far better prepared for your own decisions in that regard.

Luck!
Dave Donhoff
Strategic Equity & Mortgage Planner

Ok, how do I find this person? Please do not tell me recommendations from friends, most of my friends, while nice people are not the most savvy. And they are mostly professionals, still does not make them brilliant with this stuff

Here is my hesitation with using one person. I am currently helping someone work out a business line of credit. He currently has a 10 year relationship with Bank A. He got a line from them at prime +1 (before I got involved). He has a 750 plus FICO score and business has a track record. I recently wasted a lot of time with the loan office trying to get them to lower the rate (he applied while there was a below market promotion but he did not give them his tax returns before the promotion expired (I happen to think that is BS on their part).

Meanwhile another bank I happened to wander into is offering a promotional rate of 5.9 and then Prime. If I had just used the loan officer in the first bank I never would have found out about this promotion. As it is I am having conversations with the commercial lending officer at Bank B and probably will apply (unless someone has a better suggestion!)

I kind of feel the same about a home loan. If I just use a mortgage person that has a relationship with only a few banks how do I know I am getting the best rates?

As for the niche programs Dave mentioned, what are they in the context of a 30 year fixed loan for a property you plan to live in until you retire? Very curious

Hi Saphire,

Ok, how do I find this person? Please do not tell me recommendations from friends, most of my friends, while nice people are not the most savvy. And they are mostly professionals, still does not make them brilliant with this stuff

Understood... and the answer is that finding a worthy financial professional takes the sames steps you would expect to have to take to find a worthy specialty surgeon, or a worthy attorney, or a worthy architect. You have to roll up your sleeves, do some homework, do some sleuthing, do a bunch of calling, and then down-to-earth interviewing.

I kind of feel the same about a home loan. If I just use a mortgage person that has a relationship with only a few banks how do I know I am getting the best rates?

EXPONENTIALLY of higher importance than rates are the structured terms. The lowest rates on the wrong terms can cost you dearly in many ways (not the least of which is monthly interest.) The only way to be confident you're getting the properly fit terms are if you've vetted your professionals enough to be confident in the competence and experience of hte one you are working with.

As for the niche programs Dave mentioned, what are they in the context of a 30 year fixed loan for a property you plan to live in until you retire? Very curious

Again, a vanilla 30 FRM is the 2nd most expensive popular program available (behind only the 15 yr FRM.) It is not a niche program, per se. Of course, how it is used among the balances to be financed, and the pricing strategies (short term savings versus long term savings) leave some room for financial fitting, but its malleability is limited, at best.

Cheers,
Dave Donhoff
Strategic Equity & Mortgage Planner

"As for the niche programs Dave mentioned, what are they in the context of a 30 year fixed loan for a property you plan to live in until you retire? Very curious

Again, a vanilla 30 FRM is the 2nd most expensive popular program available (behind only the 15 yr FRM.) It is not a niche program, per se. Of course, how it is used among the balances to be financed, and the pricing strategies (short term savings versus long term savings) leave some room for financial fitting, but its malleability is limited, at best"

I like to read up on things and research them myself whenever possible. If my plans are to live in this house until I retire and I want a tremendous amount of certainty until then (nothing variable in the rate, no increase in payments) where can I learn about options without interviewing a bunch of people? Thank you

Hi Saphire,

I like to read up on things and research them myself whenever possible. If my plans are to live in this house until I retire and I want a tremendous amount of certainty until then (nothing variable in the rate, no increase in payments) where can I learn about options without interviewing a bunch of people? Thank you

Hmmm... there is no single definitive place (online nor off) that I know of.

You see, when you say you want "a tremendous amount of certainty" you also have to determine;
A) are you getting equal certainty on ALL the aspects of your financial profile, and,
B) what are the ultimate costs of each level of certainty, and the combined costs/tradeoffs.

This is the realm of financial planning & structuring. Trying to "divide and conquer" the seperate aspects of finance (like paying down a mortgage little-by-little while carrying revolving balances, or prior to being able to retire it in full... or focusing on 30 year FRMs for 'certainty' while ignoring the investment choices inside qualified retirement accounts,) is a waste of time & energy, and ultimately self-defeating.

None of the individual pieces are without effect on the rest of the pieces as a whole, and they are all interlinked, so trying to optimize one while blind to the effect on the others ends up being a completely futile exercise.

Not a "simple" answer... but, the reality of personal finance is that it really does have multiple facets that all interplay with each other and significantly affect our safety, security, and ultimately (if we are fortunate to reach it,) our freedom.

Cheers,
Dave Donhoff
Strategic Equity & Mortgage Planner

"This is the realm of financial planning & structuring. Trying to "divide and conquer" the seperate aspects of finance (like paying down a mortgage little-by-little while carrying revolving balances, or prior to being able to retire it in full... or focusing on 30 year FRMs for 'certainty' while ignoring the investment choices inside qualified retirement accounts,) is a waste of time & energy, and ultimately self-defeating"

Very easy for you to say without concrete examples. I have never in my life carried a balance on a credit card. DH did before we were married and I got all his fees waived and his cards paid off the second we got back from our honeymoon well over 10 years ago and explained why he will never be allowed to do that again. DH and I contribute the maximum to our retirement accounts and I am careful to make sure our allocations in those accounts are consistent with our goals as a whole and are not duplicates of the taxable accounts we hold. So assuming I am trading up in value and will be financing 80% (because no one will give me the house at 100% and I do not have enough cash to buy it outright) if I buy an expensive house (for me) you are right that this affects my portfolio as a whole so how do I get the least expensive rate or product that also is nbot subject to rate increases if the market changes

"Not a "simple" answer... but, the reality of personal finance is that it really does have multiple facets that all interplay with each other and significantly affect our safety, security, and ultimately (if we are fortunate to reach it,) our freedom"

Without concrete examples or references, either as to stradegies that work or references to formulas or analysis it all sounds very ambigious, mysterious and a bit glib. It is very easy to say a FMR is expensive but without providing either alternatives or examples or references as to why that is so, I have to question it

Can you do numerical or other examples of how it would work? Or point me to references that CLEARLY explain how this works or various stragies that might work for a trade up house that is intended to be held indefinitely

Hi Saphire,

Very easy for you to say without concrete examples.

I can try to post case examples for you as available and permission is granted. I have a significant portfolio of such cases... but I do need to get permission, and then put them in a postable format. May take me a bit, but I *WILL* do it... had been on my list anyway.

So assuming I am trading up in value and will be financing 80% (because no one will give me the house at 100% and I do not have enough cash to buy it outright)

Do you mean no bank will LEND 100% on that house?

Be aware, you ARE financing 100% of the purchase. Apparently you'll be taking 80% from the bank at the cost of their interest charges, and 20% from your family at the cost of the safe returns available.

There's no free lunch... ALL of the money comes at a cost, including the money you take away from your family's safety reserves and growth investments.

if I buy an expensive house (for me) you are right that this affects my portfolio as a whole so how do I get the least expensive rate or product that also is nbot subject to rate increases if the market changes

Fortunately for you, right now the expense premium on longterm fixed loans is very small above the more timeframe realistic 5 and 7 year fixed intermediary programs. You can likely get the risks completely bank-carried at just 1/4% or so above the 5 year terms.

I'd suggest being a little 'suspicious' of ol' Mr. Market, however... when Mr. Market makes longterm fixed loan costs extremely attractive relative to shorter term periods, the Market knows that the shorter term programs are more likely to become significantly cheaper as they adjust (thus the "market trickery" to entice the consumer into the more expensive programs permanently.)

Without concrete examples or references, either as to stradegies that work or references to formulas or analysis it all sounds very ambigious, mysterious and a bit glib.

It certainly takes an open mind for numbers, and the ability to visualize offsetting growth or cost curves.

The bases of the entire conceptual issue are;
Rates are relative; When costs of borrowing increase, yields on savings/investments increase, and vice versa.
Cash Is King; The costs of being illiquid in emergency can be catastrophically worse than the costs of staying liquid (in carrying costs on the leverage to do so,)

It is very easy to say a FMR is expensive but without providing either alternatives or examples or references as to why that is so, I have to question it

Currently the immediate face costs on a 30 FRM versus (as example) a 5 yr ARM are minimal... very financially unusual, which DOES definitely call for suspicion. The more obscure costs on a Fixed are the ongoing higher carry costs incurred when rates shift to the downside on the loan, but you are stuck at the higher rates unless/until you incur another round of transaction costs to reset the financing.

Eliminating uncertainty is more efficiently done by matching income yield instruments (savings & investments) to leverage instruments (mortgages.) Properly placed and managed the spread continually works in your favor, and you remain much safer as you are not locked away from your liquidity.

CLEARLY explain how this works or various stragies that might work for a trade up house that is intended to be held indefinitely

How long you intend to OWN is irrelevant, (what DOES matter is how long you intend to take to reach financial independence,) but I do have a few cases that reflect the same situation. I'll see if I can get them illustrated to present as soon as feasible.

Cheers,
Dave Donhoff
Strategic Equity & Mortgage Planner

This has been an interesting read. I see why people lobbied to get Dave back.

Dave, you said - "Eliminating uncertainty is more efficiently done by matching income yield instruments (savings & investments) to leverage instruments (mortgages.) Properly placed and managed the spread continually works in your favor, and you remain much safer as you are not locked away from your liquidity."

It's been my observation that interest rates on income investments and mortgage loans tend to rise and fall together. It would be logical for them to always do so, but have there never been temporary aberrations?

ps - how do you get the bold, indented text into your replies?

I want to know the last part too, about the bold text!

The problem as I see it is there are not that many safe investments that pay higher than prevailing rates, especially when you factor in tax. For example, in June 2001, interest rates were around 7% (I remember because SIL refinanced), the equity market was in the toilet and banks were paying 2% and even utility stocks had crashed or were about to dur to the California energy crisis. While REITs would have been a good long term investment in light of the subsequent real estate market, for the next 6 months after 9/11 even they were shaky as was the housing market (neighbor bought then and got a great deal)

My point is, what would I have done with the cash then? I really could not have made money on the spread

Interestingly, now with loan rates hovering around 6% (until the recent panic resets them) you can actually dump your money in a FDIC insured account and also get 6%, so yes I think there is a discord

Hi Liz,

It's been my observation that interest rates on income investments and mortgage loans tend to rise and fall together. It would be logical for them to always do so, but have there never been temporary aberrations?

Different classes of investments may rise & fall disproportionately to different classes of loans, so in a way there are CONSTANTLY aberrations.

I think that what you MAY be asking is; "Are there ever times when it's impossible to employ your borrowed money at a better return than the costs of interest?"

THAT is a tougher question, actually. Theoeretically the answer would have to be "yes," however in reality that could only occur in extreme conditions where something temporarily dramatically distorted the financial markets worldwide. It didn't happen in the great depression, nor the recessionary periods of the '70's & early '80's, nor the catastrophic period right after 9/11.

ps - how do you get the bold, indented text into your replies?

AHHHHH... now you REALLY want me to divulge my secrets, huh??? LOL!!!

OK... here's how to do that;
For ITALICS use this 'tag' in front of the sentence, and then at the end (but remove the spaces... I added those to disable them so you could see them.)

For BOLD do the same thing with and .

For BOLD AND ITALICS simply use the beginning tag for both in front, and the closing tag for both in the end.
Like this I want this to be both bold and italics!

NOW... go have fun, and don't hurt yourself with those now, y'hear?

Cheers,
Dave Donhoff
Strategic Equity & Mortgage Planner

Hi Saphire,

The problem as I see it is there are not that many safe investments that pay higher than prevailing rates, especially when you factor in tax. For example, in June 2001, interest rates were around 7% (I remember because SIL refinanced), the equity market was in the toilet and banks were paying 2% and even utility stocks had crashed or were about to dur to the California energy crisis.

My point is, what would I have done with the cash then?

Frankly, I couldn't tell you...
Well, actually I *COULD* cherry pick superior investment or savings vehicles that you COULD have used... with 20/20 hindsight... but you'd immediately chide me for that laziness (and rightly so.)

I CAN tell you that I know both advisors and clients of mine who HAVE structured net positive portfolios throughout each period I've known them over the last 10 years. The investments aren't always the same class between them, nor even the same over time.

It's not like you can simply say; Always borrow with a 3 year ARM, and invest that money in a 3 year CD. (In fact, that specific match would almost never work... (except when it does.))

The optimum matches are, by absolute market requirement, non-intuitive and non-common... but for the people who are diligently LOOKING for the optimum match-off relationships. Whenever enough volume demand rolls into a spread... the costs of one side of borrowing increase, and the returns on the other side of the assets decrease, merely by supply/demand. Thus, we can never fall into an easy "one size fits all" rule of thumb.

The bottom line relies on understanding the financial principles. Once these are digested & adopted, you merely start looking around you and "noticing" the realities you never saw before.

Cheers,
Dave Donhoff
Strategic Equity & Mortgage Planner

saphire, no advise, just want to thank you for doing so much research and asking so many questions.
I get to be a chair potato, do nothing and still learn through all your work!
It may come in handy...
thanks to DD also