The mortgage industry is a major financial sector in the U.S. that can affect everyone whether they own a home or not. So many things have shaped the mortgage industry over the years, both positive and negative.
Subprime mortgages, housing bubbles, non-conforming loans, nonqualified loans, the Consumer Financial Protection Bureau (CFPB), nonbank lenders, predatory lending, government-sponsored enterprises (GSEs), pandemics, fluctuating interest rates, competition as well as pressure to operate digitally rather than in person — all of this has played a role in the home mortgage market.
Despite all these factors, what borrowers need to get a mortgage still comes down to two basic factors. One, they need to show they have the money to pay a mortgage: employment, income, debt-to-income ratio, downpayment. Second, they have to have paid their prior financial obligations correctly and on time.
Fannie Mae predicts that total single-family mortgage originations will grow from $1.5 trillion in 2023 to $1.9 trillion in 2024. This growth will happen because the 94,000-plus mortgage originators (those that as of January 2024, have closed at least one loan in the past 12 months) will be able to help borrowers make sense of it all, and will gladly work with anyone who wants a mortgage.
When a loan is closed and the originator or Realtor asks the borrower, “Is there something else I can do for you?” an honest response from the borrower would be, “Yes, please make my house payments for me.” There may be a way to do that, by introducing the borrower to biweekly payments.
Build equity
Pretend to hand someone a stack of $100 bills. Ask that person what they will do with the money. Chances are you won’t hear, ‘Pay off the mortgage early’ as the answer. That doesn’t mean this person is bad with money or doesn’t pay their obligations on time.
“Kids need shoes, the car needs tires, people need to pay for vacations, medical bills … Christmas. Most people will not prepay installment loans even though they know they can.”
Life happens. Kids need shoes, the car needs tires, people need to pay for vacations, medical bills, home repairs, birthdays, anniversaries, Christmas. Most people will not prepay installment loans even though they know they can.
Author and personal finance expert David Bach has been promoting biweekly payments for many years. He calls it a simple trick that can save you tens of thousands of dollars in interest payments.
Consider this loan scenario: a $430,000 loan (an average-sized loan based on a price of $500,000 with downpayment of 14%); a 7% interest rate with a 30-year fixed mortgage rate; and $467 taxes and insurance escrow. The monthly payment would be $3,327.81.
What does paying a mortgage biweekly do? If a homeowner pays half the monthly payment every two weeks, that person will end up making the equivalent of 13 payments each year. This additional principal payment results in the borrower paying thousands less in mortgage interest over the life of a 30-year loan.
So, the borrower won’t have to make a full mortgage payment out of a single check. This will allow them to build equity faster. In the example above, a borrower would pay off their mortgages in 23 years and 11 months or six years and one month sooner. Instead of paying $599,888 in interest payments, the borrower would pay $455,606 in interest, according to calculator.net. That’s a savings of $144,282 or 24% less interest.
Automated payments
With so many other concepts and businesses, some people think they can achieve these results on their own. Very few people have the financial discipline to start or continually make an additional principal payment when they don’t have to.
An automated payment system could be the answer. Some financial companies offer automated payment systems that allow mortgage borrowers to make payments biweekly. Some lenders also offer this, either internally or through a third-party service. These systems can take out payments from a borrower’s paycheck even if they are paid monthly or bimonthly.
Mortgage originators should consider telling their clients about the advantages of paying biweekly and also urge their clients to consider opting into automated payment systems. Why? They can argue that the overall cost of the loan will be less than their competitors. Remember in the example above that the borrower will pay more than $100,000 less in interest over the life of the loan.
These originators are also are providing their clients with a convenient budgeting tool that makes paying the mortgage so simple. The clients will remember you as the originator when they are looking to refinance or when they tell their friends and family about where to shop for a mortgage. Some companies that feature automated payment systems will even offer commissions for enrolling although check with your compliance department before entering into any agreements.
In the middle of the volatility, chaos and uncertainty of the mortgage industry, mortgage professionals need every advantage they can find. Recommending an automated payment system to your clients could earn you their loyalty and future referrals. It’s a powerful financial tool that can save borrowers thousands of dollars and potentially create a new income stream for yourself.
