For home buyers, the task of finding the best financing option seems overwhelming. This is the point where they consider whether or not they should enlist the services of a mortgage broker.
Working with an experienced and competent mortgage broker is a wise decision to find the best terms and rates. However, just like working directly with banks or lenders have some pros and cons, mortgage brokers also comes with certain advantages as well as disadvantages.
People prefer hiring mortgage brokers, rather than dealing directly with lending institutions. But it is important to consider the goods and bads of working with mortgage brokers.
1. One stop solution
One of the reasons why people look for the services of brokers is to avoid loads of legwork in the mortgage shopping process. Mortgage brokers have regular contact with numerous banks, lenders and mortgage companies. They will perform all the mortgage-related formalities on your behalf, from pre-approval to closing. This saves your time in searching for the best rates and dealing with the complicated process. Moreover, they can protect you against certain lenders with heavy payment terms hidden under their mortgage contracts.
However, it is crucial to do your own research and some basic homework to know average rates available for the type of mortgage you’re applying for by using a mortgage calculator.
2. Get you best rates
Since mortgage brokers deal with lenders, they have better contacts than you. This means they can get you special rates from lenders due to their high volume of business with them. Moreover, they will negotiate with various mortgage lenders on your behalf and will present you a shortlist of best available deals. In addition to this, there are some lenders who work exclusively with mortgage brokers which mean you simply can’t contact them directly to get a retail mortgage.
3. Save Some Fees
Again, their business contact can help you in saving some fees which you can’t do on your own. Often mortgage brokers may oblige lenders to waive some or all of the fees involved in taking on a new mortgage, such as origination fees, application fees, and appraisal fees.
1. Conflicting interest
As a borrower, you have both an advantage as well as a disadvantage of the broker’s relationships with banks and lenders. The disadvantage here is their inclination towards any particular lender. If a broker is paid high commission by the lender to bring new customers then they will prefer to place your mortgage with that lender only, rather than with the lender that is the best for you.
The brokers are paid this fee on the basis of the amount of the mortgage. So, the broker may try to get you into a mortgage that maximizes their compensation. This is in contradiction to your ultimate goal of shopping for a mortgage with an affordable interest rate and low fees.
2. No Guarantee of Estimates
You need to be cautious of an offer which includes the term “good faith estimate.” This is because a broker is not a supreme authority to take any final decision. When the offer from lender includes this term, it implies that the broker has no guarantee that the offer will remain the same till the final terms of the deal. Sometimes, the lender may change the terms later on which results in paying a higher rate or additional fees.
3. May not give you access to some lenders
There are some banks and lenders who simply don’t work with mortgage brokers. After the financial crisis of 2008, some lenders refused to work with brokers because they found that the chances of defaults are higher in broker-originated mortgages than direct lending. This means you may not have access to these lenders and may miss a better mortgage term.
In a nutshell, hiring a trustworthy mortgage broker may turn out to be a wise decision to get the loan of your dreams, but it is necessary to consider all the potential drawbacks and only hiring a reliable one.