Why is there such a great difference in interest rates from individual to individual?

• There are several reasons interest rates will differ from person to person and is determined mainly by your statistical default risk as a borrower according to the lender. The most important determining factor is your credit score. In most situations, the higher your credit scores the lower your interest rate and vice versa. Other factors are also involved in interest rate determination. These include Debt-to-income ratio (DTI), Loan-to-value ratio (LTV), and, if you are applying for a second mortgage, the Combined Loan-to-value ratio (CLTV). In direct contradiction to your credit score, the higher the above ratios are in your financial situation, the higher your interest rate will be. It is important to mentions that your ratios will have less of an affect on your interest rate than your credit score. So, when you receive a preliminary quote from a bank or a mortgage broker, the quote is typically the interest rate for an individual with a high credit score and low ratios. Without a loan application and credit review it is really impossible to quote an actual interest rate. The only real preliminary quote you should receive is a range of interest rates that indicates where you might qualify depending on your credit and ratios.

• A mortgage broker is an individual, company or group of individuals who are licensed by the state in which they are located and are approved to represent wholesale mortgage lenders to potential customers.

  The mortgage broker provides the origination of the loan through the loan application process and credit review. In return for providing the wholesale mortgage lenders with this service, the wholesale mortgage lender will offer the mortgage broker reduced interest rates to offer to its customers.

  Furthermore, a mortgage broker will process your application himself/herself, lock the rate, and submit the loan to the lender. Also, the mortgage broker should continually follow your file through the whole loan process from start to finish. Your file should never get lost during the whole process.

• The most important reason is the variety of loan options available to the mortgage broker. Typically, banks offer only a small number of loan options to its customers. If you don’t qualify for the loans offered through your bank you wouldn’t obtain the loan. A mortgage broker, on the other hand, can offer several loan types through numerous lenders thus offering you the loan that best suits your needs.

  In addition, because a mortgage broker exclusively only deals with mortgages, he/she is extremely knowledgeable about the entire loan process. This allows the mortgage broker the ability to research numerous loan scenarios to find the loan that will be the most advantageous to the borrower. If the loan fails to get approved the mortgage broker doesn’t get paid. So, the mortgage broker is highly motivated to find you the best loan for your needs and get it approved.

  Because a mortgage broker has access to numerous wholesale lenders, they know which lenders offer the best rates, variety of loan options, the most relaxed underwriting standards, and the lowest loan costs at a particular time. Furthermore, the wholesale lenders actually compete for the mortgage broker’s business. This offers the mortgage broker tremendous flexibility.

  Basically, a mortgage broker is your conduit in obtaining the best loan for you. He/she can customize a specific loan program that fits your loan requirements according to many factors such as your current income, your expectations of future earnings and how long you plan to own the property. Your home is probably the single, largest and most important investment you will make in your lifetime.

  Therefore it is in your best interest to secure the best financing available. Every borrower has different needs, every property is unique and every lender has its own rules and programs, therefore a mortgage broker is the most efficient and cost-effective method for getting your loan approved.

What is the Annual Percentage Rate (APR) or how do you calculate it?

• The APR the cost of your credit expressed as an annual rate. Because you may be paying different charges such as, "Discount Points" and other "pre-paid finance charges" at closing, all these charges are added to the interest charge for the loan (which appears on the note). The total of these charges added to the loan amount will result in a higher amount than the loan rate only for the first year of the loan.

Why is the Annual Percentage Rate (APR) higher than my initial loan rate?

• In this circumstance, the Annual Percentage Rate is the cost of credit disclosed as a yearly interest rate. The APR calculation includes the initial interest rate of the loan plus other loan costs such as closing costs, prepaid fees, and mortgage insurance when applicable. The APR is normally higher than the actual interest rate, but has no effect on the initial loan rate. It is important to note, that the APR as illustrated in the Truth in Lending Form is the interest rate during the first year of your loan during the remaining life of your loan your interest rate will be the interest rate as quoted by your mortgage broker.

What is the Truth-In-Lending Act (APR) and why do I receive it?

• This disclosure was designed to provide the borrower information regarding the loan costs. This allows the borrower the ability to compare different loan programs and lenders.