Mortgage Brokers and Refinances

As a homeowner you should periodically review your personal financial position. For most people, their mortgage is their largest, long-term liability and therefore carries substantial weight in the review.

A meeting with a professional mortgage broker is the most efficient way to do this. He brings his knowledge of the current market conditions to the meeting; you bring the details of your current financial situation. During this discussion not only will an analysis of your finances be done but also your short and long term goals will be addressed. From here you will be able to make an informed decision. Should you refinance now? Should you wait until a later date? Maybe this is the time to trade-up or downsize to another property. This meeting will help you organize your thoughts and improve the focus of your goals.

Why can’t you have this discussion with a banker? Why is the mortgage broker a superior source of information? Before I can answer these questions you need to understand the differences between a broker and a banker. A banker is an entity that provides money to the public meeting the various individual needs of the consumer.

The organizational structure of a bank typically works like this. They have staff that actually meets with the consumer; they are responsible for the actual loan origination. The bank will then have an underwriting department that is responsible for the decision to approve or deny the application for credit. After the approval process is completed then the file would move to their closing department whose responsibility is to finish the transaction and distribute the proceeds of the loan.
Because of the high level of regulation in the banking industry as well as the risk of litigation, banks restrict the freedom of the Loan Originator to voice opinions or make recommendations. The originator is not working in a decision-making capacity and a consumer may interpret statements made by the originator incorrectly. If the consumer walks away from the discussion feeling he was denied credit, the bank could be facing a lawsuit. Because of the expenses both in money and reputation, banks try to avoid this problem. The bank originator’s job description limits his scope of responsibility to explaining the banks products and taking the application.

The mortgage broker is working for the consumer, not the bank. The broker’s obligation is to the applicant and therefore is free to talk openly and make the recommendations that are in the best interests of his client. This makes the broker better suited for this discussion.

Not all mortgage brokers are created equal. It’s important that you choose one that is both knowledgeable and ethical to meet with. Professionals in this field depend on referrals for the majority of their business. Their reputation is their primary tool in generating future business.

Any reputable mortgage broker will welcome the opportunity to have this meeting with you and do it free of charge. He will use this meeting to prove to you how valuable his services are. It doesn’t matter to him if refinancing is not in your best interests at this time, he knows you’ll be back when the time is right, or recommend others to him.

These are the factors that will be considered in determining the feasibility of refinancing:
The current market value of your home
The current outstanding balance of your mortgage
The current interest rate on your mortgage
The type of mortgage that you currently have (fixed, ARM, etc)
The remaining term of your mortgage
The current interest rate environment
The current underwriting standards
How long to you plan on keeping your home
The amount of outstanding loans you have and the details of those loans
Are there any upcoming expenses you will be facing (college, renovations, etc)
What does your current credit profile look like
Your current family income
Your anticipated future income (are you retiring soon, expecting a promotion, etc)
What is the total of your current liquid assets

This is not an all-inclusive list. The unique conditions of your personal financial position will bring up additional considerations. Every item on this list needs to be addressed for the analysis to be truly meaningful.

Most people don’t pay enough attention to their personal finances. The only person you can depend on for your future financial well being is you. Don’t let yourself down!