Mortgage-Broker Study Finds High Fees Charged
By JAMES R. HAGERTY WALL STREET JOURNAL May 30, 2008
The home-mortgage industry takes advantage of consumers' confusion to charge some people much higher fees than others, according to a study prepared for the Department of Housing and Urban Development.
The study by Susan Woodward, a former chief economist for HUD, also found that loans arranged by brokers typically carried higher fees than those obtained directly from lenders.
The report, released Thursday, is based on an analysis of 7,560 fixed-rate home-purchase loans completed in May and June 2001 and insured by the Federal Housing Administration, an arm of HUD.
The study says lenders typically make better offers to borrowers in neighborhoods with higher general levels of education.
Total fees paid to the lender and broker averaged nearly $3,400 on loans with an average initial principal balance of $105,000, the report said. For brokered loans, the average fees were $4,000, compared with $3,150 for loans made directly by the lender. Those fees are a combination of upfront charges and additional funds brokers and lenders get for selling loans with relatively high interest rates.
For brokers, these additional payments are known as yield-spread premiums. Brokers often defend yield-spread premiums as a way for borrowers to reduce their upfront fees in exchange for paying a slightly higher interest rate. But the study found that the yield-spread premiums mainly benefited the brokers. For every $100 extra they paid in higher rates, the borrowers on average received only a $7 reduction in upfront fees. Banks also typically kept most of the benefit when borrowers paid above-market interest rates, the study said.
Borrowers who paid "discount points" to lower their interest rates typically didn't benefit from a corresponding savings in their interest costs, the study said. It found that borrowers who chose "no-cost" loans -- in which all fees are built into the interest rate -- typically paid the lowest effective fees.
Roy DeLoach, executive vice president of the National Association of Mortgage Brokers, said that the study relies on "stale" seven-year-old data and that other studies have shown consumers save money by obtaining loans through brokers.
Friday, May 30, 2008
Closing Costs - Make Sure You Know What You Are Paying!
Mortgage-Broker Study Finds High Fees Charged
By JAMES R. HAGERTY WALL STREET JOURNAL May 30, 2008
The home-mortgage industry takes advantage of consumers' confusion to charge some people much higher fees than others, according to a study prepared for the Department of Housing and Urban Development.
The study by Susan Woodward, a former chief economist for HUD, also found that loans arranged by brokers typically carried higher fees than those obtained directly from lenders.
The report, released Thursday, is based on an analysis of 7,560 fixed-rate home-purchase loans completed in May and June 2001 and insured by the Federal Housing Administration, an arm of HUD.
The study says lenders typically make better offers to borrowers in neighborhoods with higher general levels of education.
Total fees paid to the lender and broker averaged nearly $3,400 on loans with an average initial principal balance of $105,000, the report said. For brokered loans, the average fees were $4,000, compared with $3,150 for loans made directly by the lender. Those fees are a combination of upfront charges and additional funds brokers and lenders get for selling loans with relatively high interest rates.
For brokers, these additional payments are known as yield-spread premiums. Brokers often defend yield-spread premiums as a way for borrowers to reduce their upfront fees in exchange for paying a slightly higher interest rate. But the study found that the yield-spread premiums mainly benefited the brokers. For every $100 extra they paid in higher rates, the borrowers on average received only a $7 reduction in upfront fees. Banks also typically kept most of the benefit when borrowers paid above-market interest rates, the study said.
Borrowers who paid "discount points" to lower their interest rates typically didn't benefit from a corresponding savings in their interest costs, the study said. It found that borrowers who chose "no-cost" loans -- in which all fees are built into the interest rate -- typically paid the lowest effective fees.
Roy DeLoach, executive vice president of the National Association of Mortgage Brokers, said that the study relies on "stale" seven-year-old data and that other studies have shown consumers save money by obtaining loans through brokers.
By JAMES R. HAGERTY WALL STREET JOURNAL May 30, 2008
The home-mortgage industry takes advantage of consumers' confusion to charge some people much higher fees than others, according to a study prepared for the Department of Housing and Urban Development.
The study by Susan Woodward, a former chief economist for HUD, also found that loans arranged by brokers typically carried higher fees than those obtained directly from lenders.
The report, released Thursday, is based on an analysis of 7,560 fixed-rate home-purchase loans completed in May and June 2001 and insured by the Federal Housing Administration, an arm of HUD.
The study says lenders typically make better offers to borrowers in neighborhoods with higher general levels of education.
Total fees paid to the lender and broker averaged nearly $3,400 on loans with an average initial principal balance of $105,000, the report said. For brokered loans, the average fees were $4,000, compared with $3,150 for loans made directly by the lender. Those fees are a combination of upfront charges and additional funds brokers and lenders get for selling loans with relatively high interest rates.
For brokers, these additional payments are known as yield-spread premiums. Brokers often defend yield-spread premiums as a way for borrowers to reduce their upfront fees in exchange for paying a slightly higher interest rate. But the study found that the yield-spread premiums mainly benefited the brokers. For every $100 extra they paid in higher rates, the borrowers on average received only a $7 reduction in upfront fees. Banks also typically kept most of the benefit when borrowers paid above-market interest rates, the study said.
Borrowers who paid "discount points" to lower their interest rates typically didn't benefit from a corresponding savings in their interest costs, the study said. It found that borrowers who chose "no-cost" loans -- in which all fees are built into the interest rate -- typically paid the lowest effective fees.
Roy DeLoach, executive vice president of the National Association of Mortgage Brokers, said that the study relies on "stale" seven-year-old data and that other studies have shown consumers save money by obtaining loans through brokers.
Thursday, May 22, 2008
What You Need to Know: Rental Properties, 1031 Exchanges and Private Annuity Trusts
Investors are rushing to take advantage of the opportunity to buy a rental property at today’s discount prices and there could not be a better time! Taking advantage of purchasing in this buyer’s market means paying less and putting less down on rental properties so many are taking their first step into the real estate investment market.
Whether you have never purchased a rental property before or have long been an investor, learning how to defer capital gains taxes on the profits you will make is interesting and can greatly impact your bottom line.
Let’s review two different ways you can do just that—defer paying capital gains taxes on the properties you sell.
The first method is a 1031 Tax-Deferred Exchange.
Essentially, a 1031 Exchange is the sale of one property, followed by the purchase of another investment property. The profit of the sale is rolled into the purchase of the second property, allowing the investor to pay taxes on that profit at a later date.
The investor is able to continue to use the funds she would have used to pay taxes to buy another investment property.
The 1031 Exchange works like this: A qualified intermediary who holds the sale profits between the sale of the first property and purchase of the second is retained. Next, The property is sold to any buyer. The profit is held by the QI and the investor and his agent have 45 days to identify replacement properties. Within 180 days of the first sale, the investor must close on one of the properties identified and the profit is reinvested.
A second method of deferring the capital gains tax bill is the Private Annuity Trust.
The Private Annuity Trust works like this: the investor transfers ownership of the property over to a trust. The trust gives the investor a payment contract, known as a private annuity. The contract stipulates that the trust will make regular payments to the owner over the course of his or her life. The trust can then sell the property for cash.
You are deferring capital gains taxes when you use a Private Annuity Trust, but you are not obligated to purchase another investment property—so this is the vehicle most used when an investor no longer wants to reinvest, but instead would prefer to receive retirement income.
If you would like more information about either one of these methods or to discuss
would best serve your needs, please call me at (720) 275-3926.
Opportunities for finding a great Rental Property abound in Denver’s real estate market today.
Enjoy this update of sales in various Denver areas in the first four months of 2008. You can see that prices are affordable in several popular Denver Metro areas and purchasing to hold is a great opportunity to build your financial future.
Area, Average Price Year to Date, % Change in Price since January
AUN, $99,939, - 6.5%
AUS, $194,066, - 5.8%
DHL, $362,055, - 2.7%
DNE, $203,568, + .05%
DNW, $250,369, + 3.5%
DSE, $473,213, - 8%
DSW, $129,598, - 4.3%
DEP, $366,333, - 2.5%
JFC, $239,795, - 6.5%
Whether you have never purchased a rental property before or have long been an investor, learning how to defer capital gains taxes on the profits you will make is interesting and can greatly impact your bottom line.
Let’s review two different ways you can do just that—defer paying capital gains taxes on the properties you sell.
The first method is a 1031 Tax-Deferred Exchange.
Essentially, a 1031 Exchange is the sale of one property, followed by the purchase of another investment property. The profit of the sale is rolled into the purchase of the second property, allowing the investor to pay taxes on that profit at a later date.
The investor is able to continue to use the funds she would have used to pay taxes to buy another investment property.
The 1031 Exchange works like this: A qualified intermediary who holds the sale profits between the sale of the first property and purchase of the second is retained. Next, The property is sold to any buyer. The profit is held by the QI and the investor and his agent have 45 days to identify replacement properties. Within 180 days of the first sale, the investor must close on one of the properties identified and the profit is reinvested.
A second method of deferring the capital gains tax bill is the Private Annuity Trust.
The Private Annuity Trust works like this: the investor transfers ownership of the property over to a trust. The trust gives the investor a payment contract, known as a private annuity. The contract stipulates that the trust will make regular payments to the owner over the course of his or her life. The trust can then sell the property for cash.
You are deferring capital gains taxes when you use a Private Annuity Trust, but you are not obligated to purchase another investment property—so this is the vehicle most used when an investor no longer wants to reinvest, but instead would prefer to receive retirement income.
If you would like more information about either one of these methods or to discuss
would best serve your needs, please call me at (720) 275-3926.
Opportunities for finding a great Rental Property abound in Denver’s real estate market today.
Enjoy this update of sales in various Denver areas in the first four months of 2008. You can see that prices are affordable in several popular Denver Metro areas and purchasing to hold is a great opportunity to build your financial future.
Area, Average Price Year to Date, % Change in Price since January
AUN, $99,939, - 6.5%
AUS, $194,066, - 5.8%
DHL, $362,055, - 2.7%
DNE, $203,568, + .05%
DNW, $250,369, + 3.5%
DSE, $473,213, - 8%
DSW, $129,598, - 4.3%
DEP, $366,333, - 2.5%
JFC, $239,795, - 6.5%
Wednesday, May 07, 2008
Buying Rental Properties
In Today’s Real Estate Market, opportunities abound. One of the primary opportunities my Clients are asking about is purchasing a rental property.
All over town there are great Real Estate buys, perfect for holding for a few years and selling. The decrease in lending programs for those with poor credit has closed the door of home ownership for lots of people who would like to be in a home.
Buying a rental property allows my Clients the chance to take full advantage of both of these situations.
So should a Buyer put a lot of money down on his Mortgage Loan?
The only advantage of this would be if the Buyer had a significant amount of money to put down. In that case, a tax-deferred 1031 exchange would be ideal. A 1031 Exchange protects those funds from taxation owing to a reinvestment incentive. Please let me know if this may be of interest to you.
Outside of this instance, there is usually not a compelling reason to put a lot of money down on a mortgage loan.
It is essentially correct that a larger down payment means lower interest rates and monthly payments. However, it is sometimes better to take the money, if you have it, and invest it elsewhere.
Here’s why: one will usually do better paying an extra few dollars on the monthly mortgage payment and having the capital on hand.
Should an emergency arise, one does not need to take a home equity loan to use one’s own money. Oftentimes using another investment vehicle to hold the capital that would have gone down on the loan can produce regular and profitable results that can be enjoyed before the sale of the house.
Many in our area are taking advantage and spending as little case as possible to get in on a hot rental market in Denver. It’s a great way for you to take advantage of what’s going on in Real Estate and bring more security to your future. For more information, I can be reached at (720) 275-3926.
All over town there are great Real Estate buys, perfect for holding for a few years and selling. The decrease in lending programs for those with poor credit has closed the door of home ownership for lots of people who would like to be in a home.
Buying a rental property allows my Clients the chance to take full advantage of both of these situations.
So should a Buyer put a lot of money down on his Mortgage Loan?
The only advantage of this would be if the Buyer had a significant amount of money to put down. In that case, a tax-deferred 1031 exchange would be ideal. A 1031 Exchange protects those funds from taxation owing to a reinvestment incentive. Please let me know if this may be of interest to you.
Outside of this instance, there is usually not a compelling reason to put a lot of money down on a mortgage loan.
It is essentially correct that a larger down payment means lower interest rates and monthly payments. However, it is sometimes better to take the money, if you have it, and invest it elsewhere.
Here’s why: one will usually do better paying an extra few dollars on the monthly mortgage payment and having the capital on hand.
Should an emergency arise, one does not need to take a home equity loan to use one’s own money. Oftentimes using another investment vehicle to hold the capital that would have gone down on the loan can produce regular and profitable results that can be enjoyed before the sale of the house.
Many in our area are taking advantage and spending as little case as possible to get in on a hot rental market in Denver. It’s a great way for you to take advantage of what’s going on in Real Estate and bring more security to your future. For more information, I can be reached at (720) 275-3926.
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