As a mortgage professional, you know just how important finding the ideal loan type for each borrower’s specific financial situation and goals can be. The only problem? Your clients probably aren’t quite as clear.
Unfortunately, the average consumer knows very little about personal finances in general. That may be especially true when it comes to homeownership and available home loan solutions.
That means you’ll want to prioritize financial education during borrower conversations by focusing on clear communication, using relatable analogies, visual aids, and straightforward language to break down complex concepts, or providing access to online resources or tools that help borrowers enhance their understanding. They’ll be pros before you know it!
So, let’s dive into some of the most common borrower questions surrounding loan types and their comprehensive answers:
First things first, you’ll want to explain each loan type in depth. Start with fixed-rate mortgages, as they’re simpler and typically a bit easier to understand. Even so, remember to convert all complex concepts to layman’s terms!
A sample script might be:
“A fixed-rate mortgage is a home loan in which the interest rate doesn’t change. The rate is “fixed”, or the same, throughout the entire life of the loan. For example, let’s say you take out a loan with a 5% interest rate tomorrow. In 10, 20, or 30 years, your rate would still be 5%.”
Clarify that this is the case no matter how the economy changes or evolves. It probably makes sense to wait on the refinancing discussion, too. For now, just explain that the interest rate doesn’t change with a fixed-rate mortgage.
Once they’ve got the concept of a fixed-rate mortgage down, you can jump into an adjustable-rate mortgage (ARM) As they’re a bit more complicated than a fixed-rate mortgage, you’ll probably need to spend some more time clarifying here.
A sample script might be:
“An adjustable-rate mortgage, or ARM, is a home loan in which the interest rate changes over time. The rate goes up or down (adjusts) in accordance with economic benchmarks. For example, let’s say you take out a loan with a 5% interest rate tomorrow. In a year, it could jump to 5.5%. A year later, maybe it drops to 4.5%.
There are typically caps on how much a rate can change in a given period of time, but regular changes are a part of life with an ARM.”
Remember that many clients have trouble conceptualizing the impact of interest on their mortgage payments. It might help to run some numbers with them, to really drive the meaning of an ARM home loan.
As their understanding grows, clients will begin to see the differences between fixed-rate and adjustable-rate mortgages.
You can bolster this understanding by comparing the math between the two. Create a hypothetical scenario with a fixed-rate and an adjustable-rate mortgage. Run through the numbers side-by-side to illustrate just how critical interest rates can be.
It’s a fair question, and one clients are sure to rely on you for. While the answer may be immediately obvious in some situations, others might require you to walk through the options with the client.
To help them make the very best decision, go through the pros and cons together. You can even print out or email the sections below, so they can take the information with them and think about it.
Pros include:
Cons include:
Pros include:
Cons include:
If clients still seem anxious, explain that there is no one right answer. The ideal loan type will depend entirely on their unique situation and goals, and you’ll be there to answer any questions and counsel them through.
Once they’ve made a decision and are ready to dive in, walk through the approval process together. Remember that borrower education means more involved and empowered clients, so take some time to explain each step in depth.
Encourage them to:
When educating borrowers on loan types, you’ll need to employ a unique blend of expertise and communication skills. By mastering the art of explaining intricate concepts like fixed-rate and adjustable-rate mortgages, professionals like yourself can empower current and potential clients to make informed decisions that are best aligned with their financial goals.
Clear communication is the cornerstone of a successful borrower-professional relationship, and it begins with our ability to simplify the complex and provide actionable insights!
Looking to have the hottest mortgage insights delivered directly to your inbox? Sign up for the wemlo newsletter for the latest business and mortgage trends all in one place.