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Mortgage Companies – An Insiders Guide
Mortgage Companies
You may ask, why do we have so many different types of mortgage companies? There are several reasons for this, one being that they obtain their money from different sources. For example, it is well known that banks and building societies obtain deposits from customers whether those customers be your average mum and dad or a large corporation. They have other sources also, but that is usually the main source. Other second tier lenders obtain them from various funds some of the main ones being superannuation funds. These second tier lenders do not usually offer shop front facilities to enable you to make payments or withdrawals over the counter. Most of their transactions are carried out through the internet.
Another reason we have so many lenders is that they service different requirements in the market place. For example, you have lenders that prefer to lend out on residential property while others are more favourable towards commercial lending. Also, within each market you will find there are a wide variety of terms on which they are willing to lend.
LVRs
Let's look at one of the most important considerations to a borrower. A borrower wants to know how much the lender is willing to lend. The majority of people want the most that the mortgage lender will let them have. Therefore, it is very important for them to determine the LVR of each lender they might be considering. The LVR means the loan-to-value ratio. This varies from one mortgage lender to another and also varies according to whether you are applying for a 'full-doc.' or 'low-doc.' loan. Full doc. loans are those where the borrower provides all details of their financial position, copies of bank and credit card statements for six months, pay slips and two years of tax returns. A low doc. loan is used mainly by self-employed people who do not have a regular income. These borrowers cannot provide pay slips and are not required to provide income tax returns. However, they do have to provide copies of their bank and credit card statements for the last six months and sign a declaration that their income is of a certain amount. The LVR for low doc. loans is substantially less than that for full doc. loans.
The LVR for all the various mortgage companies varies considerably. As an example, one may provide up to 95% LVR on a full doc. loan while another might lend just 90%. Before the collapse of the finance market last year some mortgage lenders would let you have 90% even on a low doc. loan. However, that has now changed and generally today the mortgage companies won't give you more than 70% LVR on a low doc. loan.
Dealing with the Wide Choice of Loans
With the numerous number of mortgage companies in the marketplace there are also numerous choices in loan products. How then do you determine which would be the best for you? You can purchase magazines that specialize in providing information on the many thousands of loans available but I believe a much better way is to use mortgage brokers and let them do all the work for you.
If you are a novice when it comes to finding a loan there is just too much information for you to sort through. A mortgage broker is a professional who is familiar with most of the products and their job is to source the best loan for you. The best loan is not always the one with the lowest interest rate. For example, you may be in a situation where you either will want to sell your property in a couple of years' time or your company might decide to send you interstate and you are faced with selling your home. If your home loan is not set up correctly then you might be faced with a hefty penalty for paying out the loan in just a few short years.
Generally, mortgage companies seek to recoup their monies if someone pays out a loan within three or five years. In many cases, the lower the interest rate the higher the penalty for early repayment of the loan. Alternatively, where you have a fairly high application fee this may be offset by lower penalties for paying out the loan early.
The Role of the Mortgage Broker
Did you know that when you engage a mortgage broker he or she is engaged to act on your behalf? A mortgage broker is someone who acts independently of the mortgage lenders, being self employed or engaged by a broking company. However, the term 'mortgage broker' can be confusing because the banks sometimes refer to their loan officers as mortgage brokers. In this case the broker does not work independently and they are not working for you but for the bank.
The task of a mortgage broker is to source the best loan for you from the various mortgage lenders on their books. They often advertise the fact that they use up to 30 or 50 lenders and so you can be sure they will find the very best deal for you amongst all these mortgage lenders. However, the reality is that most work very closely with just a few lenders. Usually this is because the terms offered by these mortgage lenders are very good and they have developed a good working relationship with them.
Apart from being obliged to work on your behalf and source a loan with good terms for you there are other advantages in using a mortgage broker. They will guide you through the process as it can be quite daunting. They will assist you in filling out the many forms and they do not charge you for their services because they are paid by the mortgage companies.
