How do you explain mortgage options to clients?

Navigating mortgage options is truly an art of tailoring solutions to individual aspirations. It's about listening intently, understanding unique financial landscapes, and then crafting a roadmap that aligns with long-term goals. Communication is key—breaking down complexities into digestible insights. I find that clarity fosters confidence. Each client is a unique story, and my role is to provide not just options but a personalized financial strategy.

Most customers prefer a 30-year fixed mortgage due to the stability it offers. However, this type of mortgage is generally the priciest borrowing option. Financial institutions often promote the 30-year fixed mortgage because it yields the most profits. More borrowers should consider different loan structures, such as interest-only, 40, and 50-year terms. Opting for a mortgage with lower payments gives you options, such as investing the extra cash flow into a low-cost index fund. Leveraging compound interest along with historical stock market returns can facilitate paying off the house more quickly, and even yield a considerable retirement fund.

How long you plan to keep the property, and hence keep the mortgage outstanding, is important. Likewise whether you like to refinance at the drop of a hat. If you are a frequent seller or refinancer, you do not want to pay up front points because you never get them back and they are amortized over a short time, making the effective cost of the mortgage loan higher. If the APR on two loans is the same, that does not mean that the cost is the same. Let's say you can only pay $X per month and in order to get that payment, you have to pay up front points to buy down the interest rate. NOT a good plan if you expect to refinance or sell the property soon because you lose all the points and do the lender a favor.

Based on experience, since I was also at one point was a Registered International Financial Consultant, I will always ask my clients if they have their emergency funds set up before diving into a big loan or mortgage. One of the reasons why we experienced the #marketcrash in 2008-2010 is because there were so many Real Estate Investors who took a dive in getting multiple properties even without any emergency funds or worst without really enough portfolio to back up the investments. This is why it is very important to have emergency funds first, then, they can start considering the house that they can afford at the moment, and strive to pay off the principal a little bit faster than scheduled.

Ok, show of hands-- how many mortgage brokers explain amortization to their clients? This conversation should definitely not be had between a real estate broker and buyer client. If they ask me a question regarding mortgages, I answer it to the best of my ability, but I always then say, "but you really need to speak to a competent lender. I have a couple of names for you to contact."

When explaining something like those issues to a non-expert, the first thing I do is ask them what they do for a living and then I use their non-mortgage knowledge base to frame the discussion. For example, you might talk about probability issues with someone who has a background in statistics using numbers, while that might be unrealistic to someone who owns a restaurant. AND remember NEVER ask for advice from someone who has an interest that may conflict with your own. Real Estate brokers want to sell houses, mortgage brokers want to sell mortgages and insurance brokers want to sell insurance. Remember that when you ask someone for advice.

Simple explanation, the lower the monthly amortization, the longer your payment. the longer the payment, the higher the interest you have to pay. simple tip: take the lowest monthly amortization, but add into the principal payment every month which will help you save some money in the long run.

Each buyer's situation is different. Must ask the questions to determine the level of mortgage expense they are comfortable with. Explaining the overall monthly payment and how it includes, Principal, Interest, Taxes and Insurance. My goal is to fully prepare my buyer so there are NO surprises. It's a process but it must be thorough. It must cover how principal and interest are applied to the loan. It must cover how property taxes and homeowner's insurance with escrows work (and maybe the buyer doesn't want to escrow).

You do NOT need 20% down for a Conventional loan. I have never described a type of loan as a high-ratio mortgage. That is not a "type" of loan. If its referencing a borrower with high debt ratios, that is just a function of comparing liabilities to income, but by no means is it considered a type of mortgage. We also never refer to mortgages as open or closed so I am not sure who came up with that. What is the time of renewal for a fixed rate mortgage? A fixed rate mortgage simply means you have fixed level payments for a specified period of time and if you make all those payments, the loan is paid off so I don't understand "but may be a higher than the market rate at time of renewal" What renewal ?

Conventional mortgages do not require 20% down. Depending on the buyer's unique situation, there is anything from 3% down and greater. I must discover my buyer's priorities in terms of funds to put down -vs- monthly payment. Explain the options with scenarios to show how a certain amount down affects the monthly payment. Explain how there are no prepayment penalties to pay the loan down quicker or by adding principal payments. Explain, how fixed rates are a more conservative approach to borrowing -vs- adjustable rate mortgages and the pros and cons for both. Always remember, my Buyer is the driver of this deal. It is my job to give him the tools to make the wisest decision for them.

In many cases the mortgage insurance premium is a larger payment factor than the interest rate. Too often I see customers who obtained FHA loans because the rate was lower and they were unaware that their payment could have been lower with a conventional loan with a lower PMI payment. In addition, FHA currently as of July 2023 charges an up front mortgage insurance premium (UFMIP) of 1.75%. Conventional loans do not charge this so although an FHA loan might offer a lower rate the fees outweigh the benefits of the lower interest rate. Rates are important but I believe mortgage insurance has a larger impact in the cost of the loan as well as the monthly payment.

In my experience shopping the rate is also a very big factor and needs a great deal of explanation as each lender has their own process of conveying information about the details of their loan.

Absolutely agree. This is what a professional does, provide and explain information so a client can make the best decision for that particular time in their lives.

Working in lock step with the clients lender is key to a successful closing. I would also suggest recommending several lenders to your clients. Each lender will have their own program and process so it is beneficial to talk to several, not only in finding the best loan program, but also finding a good fit in partner through the transaction.

Le courtier joue un r?le essentiel aujourd’hui pour d’une part accompagner son client dans la préparation de son dossier. Ce qui lui permettra d’augmenter ses chances de réussite. D’autre part, le courtier permettra également d’obtenir les meilleures conditions du marché.

As a Mortgage Adviser based in London, I assist clients by fact- finding analyzing their financial situation, goals, and preferences to recommend suitable mortgage options. I explain mortgage options in simple terms, highlighting key features such as interest rates (fixed or variable), loan terms, and repayment methods. I ensure clients understand the differences between repayment and interest-only mortgages, helping them make informed decisions based on their needs and budget.

If, later on, a buyer has a large sum of cash to put toward their mortgage, they should speak to the mortgage company about "recasting" their mortgage to reduce monthly payments. Also, they can make extra payments each year TO THE PRINCIPLE ONLY, in order to shorten the number of years and the total interest they will pay!

As a real estate broker and former loan officer I get questions about loans from my clients i till them to ask some specific questions about what type of loan program fits them best to the lenders I refer them too I tell them to ask typically about specific options for the properties they are interested in if it’s rural ask about usda if it applies. That’s my 2 cents