Your mortgage interest rate could be lowered by proposed regulations

One of the more disgusting practices common in the mortgage market is the special incentives many lenders pay to mortgage brokers who convince you to take a mortgage at an interest rate higher than you could get based on your credit rating score.

Think about how crazy this is.  You go to a mortgage broker because you think they can get you the best rate by shopping your mortgage to multiple lenders; BUT they get paid by the lender to do the opposite:  Sell you on a higher rate.

Good mortgage brokers do not take advantage of this premium, but lots of brokers, hungry for commissions, do.  This costs tens of thousands of borrowers millions of dollars in excess interest every year.

Now the Federal Reserve (Fed) is proposing to end this practice — and some others — with new regulations.  It has proposed all of the following and is now waiting for public comment:

All mortgage applicants will get:

  • A simplified one-page summary explaining risky features of the loan, including things like interest-only loans, negative amortization loans, and adjustable rates.
  • Full cost disclosures earlier in the process, including an annual interest rate calculation with all costs wrapped in, allowing easier comparison of mortgage interest rates and costs.
  • A graph showing how the rate you are getting compares to the rate given to borrowers with excellent credit.

If you are looking at a home equity loan, you will get:

  • A one-page document explaining the risks of such loans.
  • A much better disclosure form specific to your proposed loan
  • 45 days notice before the lender makes any changes to the loan.

All of these provisions, if enacted, could lower your interest rate because they remove incentives for brokers to get you less than the best rate for which you qualify, and they give you more useful information you can use to shop around.

For general information on Mortgage Terms, click here to our archives.

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