Millions of people have continued to successfully buy their vey first-homes and this number has increased significantly over the past 20 years, learn more here. Why is that?
Enter. Mortgage Brokers.
Mortgage brokers have been around to help home-buyers to find some of the best terms or rates that suite their budget. Their job is to help clients such as these first-time home buyers acquire a loan and process the documents needed making the process easier and less stressful to the buyer.
Brokers play a vital role in helping a lot of people get their dream homes and to continue doing this, they need to make sure that they are also able to sustain and grow their business at the same time.
If you are a mortgage broker or are planning a career in the said field, continue reading for a few pointers you need to keep in mind.
A Few Key Aspects to Pay Heed To
If you run a mortgage lender branch and give loans to borrowers, there are a few ways to make money in the industry. Some of these will include elements such as yield spread premiums or origination fees, and perhaps even giving your borrowers discount points, mortgage-backed securities, closing costs, and loan servicing can all help towards this end-goal.
There are also the fees for closing and the costs involved are also ways in which one can make some extra bucks on top. Aspects such as handling the application in-house, loan locking, processing fees, and underwriting all cost fees.
The “Mortgage-backed securities” allow any lender to profit by packaging and selling their loans. Also including in the fees is the servicing of these loans.
Lastly, when we talk about “yield spreads” these typically include the spread of the proportion that a lender pays for funds that they borrow from the larger banks coupled with the rate that they charge their borrowers.
One such example of a scenario where this fits well is Homebuyers. They would normally incur lots of expenses in the process of buying their homes including the substantial costs involved with applying for a mortgage. For them, it is important to understand how lenders get paid and how they make their money.
The reason for this is when the public educates themselves on these aspects the likelihood of them saving thousands of dollars towards their mortgages is high and they will have a sense of security about it too. Let’s break it down for you.
Ways to Make Money Via Your Loans
Origination Fees. One point to note is that lenders usually use their funds when extending mortgages to borrowers. This involves what’s called an “origination fee”, usually between 0.5% and 1% of the value of the loan. This amount is due along with the mortgage payments. It increases the interest rate paid on the mortgage as well as the total cost of the house.
As an example, an origination fee is characteristically 0.5% to 1% of the loan amount. If a loan is worth $200,000 and has an interest rate of 6% over 30 years, on this amount, there is an origination fee of 2%. The home buyer will pay the 2% fee along with any other relevant types of fees when they close the loan https://www.investopedia.com/terms/o/origination-fee.asp
Discount Points. This is part of the loan that is known as the “discount point”, as mentioned above it is due at closing of the loan to help minimize the mortgage rate. For instance, one discount “point” could be equivalent to 1% of the remortgage loan and can reduce the loan by 0.25%.
Yield Spread Premium
Lenders commonly use funds from either borrowing from larger institutions at a lower interest rate, such as banks or get it from their depositors. This interest rate differs from the rate that the lenders pay for replacing the borrowed money, and as such is called the YSP or “yield spread premium. An example mentioned by the popular Mortgage Right would be, the lender borrows funds at 4% interest but then extends the mortgage to the borrowers at 6% interest, resulting in earnings of 2% in interest on the total loan amount.
Lastly, the closing costs are also a means to an end. In addition to the loan origination fee mentioned above, and the processing fee, application fee, underwriting fee, and loan lock fee., plus other possible fees charged by lenders that are paid during the closing, the closing fee costs may vary and are usually transparent to the borrower i.e. explained upfront as good faith. The home buyer may negotiate these fees or they may look for another lender.