New rules going into effect in the next few days will outlaw the practice of mortgage brokers putting borrowers into higher-rate mortgages in return for kickbacks from lenders.
This egregious practice was happening throughout the housing boom (and the bust) and very often homebuyers were none the wiser. That’s because most people only go to a single lender when they’re looking for a loan. So people ended up paying tens of thousands of dollars or more for a loan than they might have otherwise. Or worse, they were put into a loan where the payments were too high and they eventually lost their home.
The new laws, set to go into effect April 1, will wipe out the incentive for mortgage brokers to put anybody in a terrible loan. It will make brokers your “fiduciary,” and it’s a necessary step in healing one part of the hurt from the real estate meltdown. Predictably, the mortgage industry is fighting mad about these new rules and they’re trying to file lawsuits to delay or stop them. Knock on wood, hopefully the rules will go through uncontested.
I want you to talk to multiple lenders when you’re looking for a loan. Last time I needed a home loan, I shopped multiple lenders and the difference in rates from one to another was significant and even severe in one case. As I did more shopping, the lenders who knew I was shopping around would try to make better offers as I provided documentation of what their competitors were offering.
Regardless of the law, I want you to do your part and be a good, thorough shopper. Interest rate is only one factor. Another factor to consider is if you’ll have to pay any points, where each point is 1% of the amount of money you’re borrowing. Third, what are the closing costs? If you ask these questions methodically and compare responses, you will save huge money most of the time.
