Q & A with Dottie Herman

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Q1 - I have 10 years left on my mortgage. I want to pay it off early as I just inherited some money. Due to the current economic environment do you think my bank will waive my prepayment penalty if I pay it off in full?

A - Only the bank can answer that question. I will add that few banks have prepayment penalties that go beyond the first 5 years of the loan, fixed rates rarely have a prepayment, and many states have laws that define exactly what is allowed as a prepayment penalty.

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Q2 - What's the difference between a mortgage banker and a mortgage broker? What are the pros and cons of each?

A - The mortgage process has four parts; origination, underwriting, funding and servicing.  Mortgage brokers can only do the first one which is origination.  This is the sale of the loan product to the consumer, taking the application, and submitting it for approval.  A mortgage banker is no different than a bank in that a mortgage banker will perform all aspects of the loan process including making a decision, using their own monies to close the loan, and taking on the risk of making the underwriting decision.  Mortgage bankers normally do not service the loan so your payments will often go to another institution.  This is because servicing requires large economies of scale to be profitable, so a few large banks have specialized in this. Both mortgage brokers and mortgage banks can provide great service, however, the advantage of one over the other would be that a mortgage bank has more control over the process and decision, so in some cases may be able to be more responsive and you can speak to the lender that is actually providing the loan.

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Q3 - I have always rented and I recently got married for the second time. My wife wants to purchase a residence. We have the down payment, but I prefer to live freely rather than be tied down with mortgage payments and the maintenance obligations of owning- what are some of the pros to owning?

A - Historically owning a home has been a great investment that will gain value over time. If you need to recoup some of the payment you can always rent it out or sell it.  If you do not plan to live in the home long enough to receive the benefits of owning, then it might not be the right choice for you and your family.

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Q4 - Where do you think rates are headed? Is now the time to buy?

A - As I write this, December 2010 rates have already moved up off the lows we have seen, and I do not expect them to go down again. The forecast is that rates will rise about 3/4% over the next 4-8 months.  Making this a very good time to buy.

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If you have a real estate question for Dottie, please send it to; Dottie@RealEstateChannel.com

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