Online Mortgages Can Be Easier, Cheaper

July 9, 2003 -- If you are still waiting for rates to drop even further before you purchase a home or refinance your current mortgage, it is time to stop waiting and take action.

Rates ticked up to 5.4 percent on a 30-year fixed loan last week (up from 5.24 percent the prior week), but don't be discouraged by the increase. Rates are still extraordinarily low, and right now is still an excellent time to purchase or refinance a home.

The Mortgage Bankers Association of America estimates that mortgage originations will total $3.3 trillion in 2003, 68 percent of which will represent refinanced mortgages. In fact, the MBAA estimates there will be 11.5 million refinancing applications this year worth almost $2 trillion in loans, up from 8.5 million applications worth $1.4 trillion in 2002.

With the boom in refinancing and home buying, more and more institutions, especially those online, are getting into the mortgage business, so you may want to look beyond your local bank or lender for the most competitive financing package.

With a multitude of options, which are the best offers, and more importantly, which are the most legitimate? There are several reputable providers offering access to a variety of lenders and/or financing packages. Here are some online mortgage sites with good offers.

E*TRADE

E*TRADE Financial (etrade.com) is now offering, for a limited time, a portable mortgage product known as "Mortgage on the Move" for loan amounts between $60,000 and $1,000,000. It enables home buyers seeking 30-year fixed mortgages to take advantage of today's historically low rates by locking in a rate now and carrying it with them to their next home purchase.

Traditional mortgages require homeowners to take out a new mortgage with every new purchase, meaning they have to re-qualify and re-negotiate for a new rate. With "Mortgage on the Move," E*TRADE will offer you a second mortgage at the same rate as your first mortgage if your next home purchase is more expensive than your first mortgage.

More specifically, you can transfer the balance on your first mortgage at your current rate to a new loan and also take out a second mortgage to cover the loan difference at the first mortgage's rate. Alternatively, if you move into a less expensive home, you also maintain the first mortgage rate, meaning your monthly payments would be lower.

Keep in mind, you can only exercise the portability option once and although you are maintaining a mortgage with E*TRADE, you will be responsible for paying all closing costs, fees and expenses affiliated with the second mortgage.

You may be eligible for a portable mortgage if you are purchasing a primary residence (vacation homes are not eligible); have had no late mortgage payments in the past 12 months; and have had no foreclosures in your recent credit history. Unfortunately, for those looking to refinance with this product, you are out of luck, as it is not available to refinanced loans — only brand-new real estate acquisitions.

While E*TRADE only wrote about 1 percent of all mortgages in 2002, Mortgage on the Move could be a significant boom for their business.

E-Loan

E-Loan (eloan.com) processes and underwrites loan applications in-house, allowing the consumer to apply online for pre-approval of a mortgage loan, and get a rate along with approximate closing costs. One of E-Loan's strongest selling points is it does not charge any "junk fees" (i.e., costs associated with credit reports, document processing, origination, etc.), potentially saving the consumer a significant amount of money. However, it does charge third-party fees, which include the costs of title insurance, appraisals and taxes.

An additional benefit of E-Loan is that it offers a low-cost guarantee, in which it will match an overall loan package (which includes rate, points, closing costs, etc.) from an outside lender or give you $500.

LendingTree

Having facilitated approximately $48 billion in loans since its 1996 inception, LendingTree (lendingtree.com) is a leading online lending exchange consisting of more than 200 banks, lenders and brokers. LendingTree offers loans across multiple categories, including home mortgages, home equity, cars, personal, credit cards and debt consolidation.

If you apply for a home loan with LendingTree, it attempts to send your request to four lenders (at no cost to you) to offer you the most competitive rates, alleviating the amount of actual legwork you would have to do on your own. Your credit report will not show four separate inquiries — which can negatively impact your credit. However, be aware that LendingTree cannot guarantee your request will be matched with four lenders, so at times, the number of rates you receive may be less than four.

The good news is each lender works under the assumption that it is competing against three other lenders, so it will try to make you a competitive offer to get your business.

As an added perk, consumers using LendingTree can earn frequent-flier airline rewards from Continental, Delta, United, US Airways and Northwest. Clients earn 1,250 miles for every $10,000 borrowed on a mortgage, home equity or car loan.

Charles Schwab

The latest entrant into the mortgage business is Charles Schwab, which seeks to offer the very best price on home mortgage loans through the newly launched Charles Schwab Bank (schwabbank.com). The bank guarantees it will beat any lender's total price by $100 or give the customer $500 ($750 in California) if they close with another lender. In order to receive the $500, applicants must provide a complete, system-generated "Good Faith Estimate" that lists the other lender's name and is dated on the same day as the rate quoted by Charles Schwab Bank.

In addition to guaranteeing to beat other lenders' rates, Charles Schwab Bank pledges to approve a loan decision within 24 hours or pay the customer $250. It also commits to meeting the agreed-upon closing date, or it will reduce the homebuyer's interest rate by 0.125 percent for the life of the loan. Lastly, independent financial advisers are able to offer these guarantees to their own clients through Schwab.

In its first month of business, Schwab issued 3,000 mortgages totaling $900 million in loans. The average loan was $250,000.