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FDIC Consumer News - Summer 1999
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New brochure explains how any consumer can negotiate the best deal on a home loan
You should look for a mortgage the way you'd look for a carget all the important cost information, shop around and, yes, negotiate for the best deal.
That's the message of "Looking for the Best Mortgage: Shop, Compare, Negotiate," a free consumer brochure published by 11 federal agencies, including the FDIC, other banking regulators, the Federal Trade Commission and the U.S. Department of Housing and Urban Development.
"This brochure provides critical information about a consumer's ability to negotiate the rates and terms of loans, which can lead to lower closing costs and more affordable mortgages for millions of homebuyers," says FDIC Chairman Donna Tanoue. She adds that the brochure is "one more example of the critical role of banking regulators in educating consumers, in addition to enforcing compliance with consumer protection rules."
Elaine Drapeau, a Community Affairs Specialist with the FDIC in Washington, says the agencies developed the brochure partly because "we had the sense that many consumers, if not most of them, aren't aware that they can negotiate the rates and terms of a mortgage."
The brochure describes how comparing and negotiating interest rates, fees and other payment terms can help you get the best financing and possibly save thousands of dollars, whether it's a home purchase, a refinancing or a home equity loan.
Here's one example of why you should ask about costs and negotiate for the best deal: Many people think that when they get a quote on a loan from a lender or a mortgage broker (someone who finds a lender for you) that the same price is being offered to everyone. But on any given day, a lender or broker may offer the same loan at different prices for different consumers, even if those consumers are equally qualified for the loan. Why? Often that's because the loan officer or broker is allowed to keep some or all of the difference between the lowest-price loan available and any higher price the consumer agrees to pay. It's extra income for the employeecalled an "overage" in the lending business.
Many practical consumer tips from the brochure appear in the box below. In addition, the brochure outlines common sources for home loans, explains key mortgage-lending terms and highlights some of the laws that protect consumers from unfair lending practices. It also contains a worksheet consumers can use to compare costs while shopping.
PMI is an insurance policy that protects the lender from losses when a mortgage goes bad. Lenders usually require PMI for borrowers who make a down payment of less than 20 percent of the home value. Under the new law, with certain exceptions, PMI automatically will be terminated if the borrower accumulates 22 percent equity in the home and is current on mortgage payments. Also, if the borrower has a good payment history he or she may request that PMI be cancelled when built-up equity equals at least 20 percent of either the purchase price or the original appraised value, whichever is less. Prior to the new law, a lender could continue to require monthly PMI payments long after the borrower had built up substantial equity in the home and the lender no longer faced losses from default.
For more details, start with your mortgage lender or, if your loan has been "sold," contact the company where you send your mortgage payments.
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