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What You Need To Know About Mortgage Brokers

What You Need To Know About Mortgage Brokers

For those who are completely new to the mortgage field, this article covers the basics. A mortgage occurs when a property is charged by a creditor as debt security.  Mortgages are popular in the banking industry today and they influence interest rates because of their importance. Mortgages are paid off over a long period of time, in many cases over a thirty-year period. Despite the fact that they are paid over a long period, mortgage charges take up a significant part of the monthly salaries of most people.

What is a mortgage broker?

Having established the ideology of what a mortgage is about, it’s important to know what mortgage brokers are. A mortgage broker is an intermediary that negotiates mortgage loans for individuals, groups, and business organizations. A mortgage broker may either work on behalf of a bank or lending institution, or be independent. In many cases after mortgage brokers working on behalf of institutions have obtained vast experience in the field, they move on to become independent mortgage brokers, otherwise known as private mortgage brokers.

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How are mortgage brokers paid?

Although mortgage brokers can be paid in a variety of ways, in most cases they are paid by the lenders. Consequently, this implies that they offer services free of charge to their clients. While many brokers are paid by their lenders, other brokers charge clients a small fee for their services. It’s important to understand that private brokers can freely set their service prices and preferred mode of payment since they operate independently. When dealing with mortgage brokers, it is important to know if you’re dealing with a broker who works with an institution or with an independent broker. Before hiring the services of a mortgage broker, ask questions about fees and payment mode. This is especially important if you’re transacting with a private broker.

Like other businesses, there are some downsides to note when transacting with corporate mortgage brokers. The major downside is that they do not have access to funds being requested as fast as possible, especially in cases of emergencies. They have large numbers of clients to process funds on their behalf and may not be able to process loan requests within a short amount of time. Mortgage brokers working for financial institutions typically have less experience. Conversely, independent mortgage brokers have acquired vast experience and can process loan requests much more speedily. This experience helps them bypass undue hierarchies, prepare paper work, and present loan requests to the right bank official directly and get prompt response after the loan request.

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What advantages do independent mortgage brokers have over corporate mortgage brokers?

Independent mortgage brokers have a very unique edge that makes them very proficient in service delivery. One advantage of using independent brokers is the array of information and deals to which they have access. Because they transact with multiple lenders, they are well connected and have in-depth knowledge about the ins and outs of brokerage service. It is safe to say that the independent broker is connected to a large number of lenders; some are connected to over twenty lenders. This variance gives you alternatives and the ability to make choices that suit your best interests.

This makes the services of an independent service unique and worth potentially several thousand dollars depending on the property value for which a mortgage is being sought. For example, a mortgage of $100,000 at about 1% lower interest rate over a thirty year period saves $30,000 depending on when interest on the principle amount is recalculated.

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In the mortgage industry, mortgage fraud is a cause for concern and there’s need to determine credibility before transacting with a mortgage broker. In the United States for example, the credibility of a mortgage broker can be easily ascertained by checking with the Better Business Bureau (BBB). The BBB provides business ratings so you can get detailed information about the proficiency, history, and other important business accreditations of a mortgage broker. In other countries similar organizations provide similar services and you can look up information on any mortgage broker of your choice and even read reviews about them if they have functioning websites.

Things a Mortgage Broker Does for You that a corporate broker cannot:

  1. Wide scope of honest advice

Trained corporate brokers are limited compared with independent brokers, and corporate brokers only have knowledge about the institution they represent. An independent broker has vast experience and offers varieties of options that best meet your interests.

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  1. In-depth education

Your mortgage broker’s job is to help you understand the different mortgage products that are available for your credit and income level. Your broker can help you develop an action plan so that even if you don’t qualify for a better mortgage now, you’ll be able to get a better rate after implementing the plan.

  1. Help negotiate preferential transactions

Corporate brokers are not hinged on fixed rates; they can help you look into your financial records and help determine the right lender and rates to apply for. A corporate broker may help you in securing lower rates, but you don’t have valid guarantees that these reductions won’t be cancelled out by hidden fees. Independent brokers know the loop holes, can identify pitfalls and hidden clauses in paper work, and help you save lots of money in the long run.

Featured photo credit: Sherissehume via sherissehume.com

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Last Updated on September 2, 2020

How to Set Financial Goals and Actually Meet Them

How to Set Financial Goals and Actually Meet Them

Personal finances can push anyone to the point of extreme anxiety and worry. Easier said than done, planning finances is not an egg meant for everyone’s basket. That’s why most of us are often living pay check to pay check. But did anyone tell you that it is actually not a tough task to meet your financial goals?

In this article, we will explore ways to set financial goals and actually meet them with ease.

4 Steps to Setting Financial Goals

Though setting financial goals might seem to be a daunting task, if one has the will and clarity of thought, it is rather easy. Try using these steps to get you started.

1. Be Clear About the Objectives

Any goal without a clear objective is nothing more than a pipe dream, and this couldn’t be more true for financial matters.

It is often said that savings is nothing but deferred consumption. Therefore, if you are saving today, then you should be crystal clear about what it’s for. It could be anything, including your child’s education, retirement, marriage, that dream vacation, fancy car, etc.

Once the objective is clear, put a monetary value to that objective and the time frame. The important point at this step of goal setting is to list all the objectives that you foresee in the future and put a value to each.

2. Keep Goals Realistic

It’s good to be an optimistic person but being a Pollyanna is not desirable. Similarly, while it might be a good thing to keep your financial goals a bit aggressive, going beyond what you can realistically achieve will definitely hurt your chances of making meaningful progress.

It’s important that you keep your goals realistic, as it will help you stay the course and keep you motivated throughout the journey.

3. Account for Inflation

Ronald Reagan once said: “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hitman.” This quote sums up what inflation could do your financial goals.

Therefore, account for inflation[1] whenever you are putting a monetary value to a financial objective that is far into the future.

For example, if one of your financial goal is your son’s college education, which is 15 years from now, then inflation would increase the monetary burden by more than 50% if inflation is a mere 3%. Always account for this to avoid falling short of your goals.

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4. Short Term Vs Long Term

Just like every calorie is not the same, the approach to achieving every financial goal will not be the same. It’s important to bifurcate goals into short-term and long-term.

As a rule of thumb, any financial goal that is due in next 3 years should be termed as a short-term goal. Any longer duration goals are to be classified as long-term goals. This bifurcation of goals into short-term vs long-term will help in choosing the right investment instrument to achieve them.

By now, you should be ready with your list of financial goals. Now, it’s time to go all out and achieve them.

How to Achieve Your Financial Goals

Whenever we talk about chasing any financial goal, it is usually a two-step process:

  • Ensuring healthy savings
  • Making smart investments

You will need to save enough and invest those savings wisely so that they grow over a period of time to help you achieve goals.

Ensuring Healthy Savings

Self-realization is the best form of realization, and unless you decide what your current financial position is, you aren’t heading anywhere.

This is the focal point from where you start your journey of achieving financial goals.

1. Track Expenses

The first and the foremost thing to be done is to track your spending. Use any of the expense tracking mobile apps to record your expenses. Once you start doing it diligently, you will be surprised by how small expenses add up to a sizable amount.

Also categorize those expenses into different buckets so that you know which bucket is eating most of your pay check. This record keeping will pave the way for cutting down on un-wanted expenses and pumping up your savings rate.

If you’re not sure where to start when tracking expenses, this article may be able to help.

2. Pay Yourself First

Generally, savings come after all the expenses have been taken care of. This is a classic mistake when setting financial goals. We pay ourselves last!

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Ideally, this should be planned upside down. We should be paying ourselves first and then to the world, i.e. we should be taking out the planned saving amount first and manage all the expenses from the rest.

The best way to actually implement this is to put the savings on automatic mode, i.e. money flowing automatically into different financial instruments (mutual funds, retirement accounts, etc) every month.

Taking the automatic route will help release some control and compel us to manage what’s left, increasing the savings rate.

3. Make a Plan and Vow to Stick With It

Learning to create a budget is the best way to get around the uncertainty that financial plans always pose. Decide in advance how spending has to be organized

Nowadays, several money management apps can help you do this automatically.

At first, you may not be able to stick to your plans completely, but don’t let that become a reason why you stop budgeting entirely.

Make use of technology solutions you like. Explore options and alternatives that let you make use of the available wallet options, and choose the one that suits you the most. In time, you will get accustomed to making use of these solutions.

You will find that they make it simpler for you to follow your plan, which would have been difficult otherwise.

4. Make Savings a Habit and Not a Goal

In the book Nudge, authors Richard Thaler and Cass Sunstein advocate that, in order to achieve any goal, it should be broken down into habits since habits are more intuitive for people to adapt to.

Make savings a habit rather than a goal. While it might seem to be counterintuitive to many, there are some deft ways of doing it. For example:

  • Always eat out (if at all) during weekdays rather than weekends. Weekends are more expensive.
  • If you are a travel buff, try to travel during off-season. You’ll spend significantly less.
  • If you go shopping, always look out for coupons and see where can you get the best deal.

The key point is to imbibe the action that results in savings rather than on the savings itself, which is the outcome. Focusing on the outcome will bring out the feeling of sacrifice, which will be harder to sustain over a period of time.

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5. Talk About It

Sticking to the saving schedule (to achieve financial goals) is not an easy journey. There will be many distractions from those who are not aligned with your mission.

Therefore, in order to stay the course, surround yourself with people who are also on the same bandwagon. Daily discussions with them will keep you motivated to move forward.

6. Maintain a Journal

For some people, writing helps a great deal in making sure that they achieve what they plan.

If you are one of them, maintain a proper journal, where you write down your goals and also jot down the extent to which you managed to meet them. This will help you in reviewing how far you have come and which goals you have met.

When you have a written commitment on paper, you are going to feel more energized to follow the plan and stick to it. Moreover, it is going to be a lot easier for you to track your progress.

Making Smart Investments

Savings by themselves don’t take anyone too far. However, savings, when invested wisely, can do wonders.

1. Consult a Financial Advisor

Investment doesn’t come naturally to most of us, so it’s wise to consult a financial advisor.

Talk to him/her about your financial goals and savings, and then seek advice for the best investment instruments to achieve your goals.

2. Choose Your Investment Instrument Wisely

Though your financial advisor will suggest the best investment instruments, it doesn’t hurt to know a bit about the common ones, like a savings account, Roth IRA, and others.

Just like “no one is born a criminal,” no investment instrument is bad or good. It is the application of that instrument that makes all the difference[2].

As a general rule, for all your short-term financial goals, choose an investment instrument that has debt nature, for example fixed deposits, debt mutual funds, etc. The reason for going for debt instruments is that chances of capital loss is less compared to equity instruments.

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3. Compounding Is the Eighth Wonder

Einstein once remarked about compounding:

“Compound interest is the eighth wonder of the world. He who understands it, earns it… He who doesn’t… Pays it.”

Use compound interest when setting financial goals

    Make friends with this wonder kid. The sooner you become friends with it, the quicker you will reach closer to your financial goals.

    Start saving early so that time is on your side to help you bear the fruits of compounding.

    4. Measure, Measure, Measure

    All of us do good when it comes to earning more per month but fail miserably when it comes to measuring the investments and taking stock of how our investments are doing.

    If we don’t measure progress at the right times, we are shooting in the dark. We won’t know if our saving rate is appropriate or not, whether the financial advisor is doing a decent job, or whether we are moving closer to our target.

    Measure everything. If you can’t measure it all yourself, ask your financial advisor to do it for you. But do it!

    The Bottom Line

    Managing your extra money to achieve your short and long-term financial goals

    and live a debt-free life is doable for anyone who is willing to put in the time and effort. Use the tips above to get you started on your path to setting financial goals.

    More Tips on Financial Goals

    Featured photo credit: Micheile Henderson via unsplash.com

    Reference

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