Saving Money on Your Home Loans
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Saving on Your Mortgage Loan

A recent study conducted by the Center for Responsible Lending (CRL) examined the impact of working with a mortgage broker on the quality and cost of a home loan for borrowers with various credit ratings. The findings suggest that most American mortgage borrowers aren't sure where to get the best (i.e. least expensive) mortgage loans.

Luckily, the study also included suggestions for how to make sure you get the most bang for your buck. Before we pass those tips along to you, take a look at exactly how much money you stand to lose if you get a mortgage loan from the wrong source.

Mortgage Brokers vs. Retail Lenders

When taking out a home loan, you have two choices: go to a mortgage broker or work directly with a retail lender (like a bank or credit union). In theory, mortgage brokers work as middlemen, connecting lenders and borrowers to work out the best loans. In practice, though, the best loans for the mortgage broker may not be best for the borrowers.

And the authors of the CRL study dubbed mortgage brokers "the engine of the subprime market."

During the subprime boom, mortgage brokers often received bonuses for signing clients up for adjustable-rate loans, which are more expensive than traditional fixed-rate loans. In theory, ARMs were worth a lot on the secondary market because whoever bought them would receive serious money from borrowers' interest payments. In practice, though, many borrowers with ARMs defaulted when payments increased. This ended up costing investors serious money.

Naturally, when a broker can get a bonus from directing a lender toward an ARM, he's likely to do so. Here's a table from the study illustrating the cost (or savings) borrowers experienced when working with a mortgage broker as opposed to a retail lender. The data are from comparable loans originated from 2004-2006.

     Time In Loan  
Market Segment 1 Year 4 Years 30 Years
Subprime $1,174 $5,222 $35,874
Near Prime $154 $1,316 $7,094
Prime ($174) ($42) ($1,767)

During the life of a loan, a subprime borrower would pay $35,874 more for a mortgage broker's loan than for one from a bank or credit union!

Note that prime borrowers actually save money when working with mortgage brokers.

How to Save Money on Mortgage Loans

If you don't have a top credit rating, you can expect to pay a little more for loans than those with prime credit. But you should still be able to find a manageable loan that won't lead to foreclosure or throw you into bankruptcy.

The CRL suggests following these guidelines when taking out a home loan:

  • Before applying for loans, check your credit report and your credit score.
  • Get several quotes before committing to a loan, some from brokers and some from retail lenders. To prevent damage to your credit score, shop for loans in a short time (no more than six weeks). Don't assume you'll get the best offers available from every lender.
  • Make sure that one loan option from each lender is a fixed-rate loan with regular monthly payments that cover some principal and some interest.
  • Look at interest rates as well as total fees. Ask about fluctuations in payments and how high your payments might climb.
  • Steer clear of loans with prepayment penalties, which can limit your ability to refinance and make a loan more expensive overall.

Remember, a mortgage loan will likely be one of the biggest investments you ever make, so it's in your best interest to take the time to get the best deal possible. If you're still not sure how to proceed, it may be time to consider filing bankruptcy. By talking with a local bankruptcy lawyer, you can determine what options are available to you in your current financial situation and whether bankruptcy may help you meet your goals.

Simply fill out the form below or call 877-34-1309 to connect with a local bankruptcy lawyer for a free case evaluation.

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