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Mortgage Broker or Bank - Which is really better for you?
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This has been a discussion ever since the mortgage broker came on the scene
and began to offer an alternative to just going down to the corner banker and
signing a mortgage.
Many new developments come and go in the mortgage industry and while there are
those who are convinced that the mortgage broker will fade away, this has been
the view of many though the years and the mortgage broker is still on the scene.
Both the Bank and The Mortgage Broker have their advantages, yet I have chosen
to go the way of the mortgage broker because the choices available to borrowers
are much greater than with a bank.
The Origination of The Mortgage Broker
We all know what a bank is, but what really is a mortgage broker? Let's start
with the basic descriptions and functions each provides and this will help you
to see why I believe a broker is better when it comes to getting a mortgage
for your home.
The simple answer is that the bank is where you have your savings account and
keep you money. The bank gives you interest for you to keep your money there
and then loans the money back to others.
The mortgage broker is an avenue for borrowers to connect with wholesalers who
provide enough money for the billions of mortgage loans that are transacted
every year.
If the bank pays you 3% interest to borrow from you, but charges 6% to loan
it to someone else, then the difference is the profit that keeps the bank running.
That is the way it used to work. In the old days, the bank would loan you the
money and collect the payments and you had your savings, your home mortgage,
your loan for the car and the boat all in one place. Life was simple.
Today, a bank does not collect enough money in one place to also have enough
to lend back to provide all the mortgages that are requested and they also have
to go through wholesalers to have enough money to satisfy the needs of all the
borrowers.
Three Segments of The Mortgage Industry
Some banks still do it all, but today, not all banks collect the payments or
"service the loan." Some just loan the money. Other banks now just
collect the payments and do not loan the money at all.
This division has actually led to the creation of three different segments of
the mortgage industry. Those that provide a place where a consumer can get a
mortgage or loan, those that collect payments on the loans and wholesalers who
provide the money and connect the other two.
This division of the industry has not only led to better mortgage prices for
consumers as each division can focus on their job. It is more profitable today
for many companies to focus on just one part or the other rather than trying
to wear too many hats. This has also led to the creation of the mortgage broker.
Even the banks that do it all have segmented their own companies. When you go
to a branch to get a mortgage, this branch gets the money from the same wholesaler
that a broker gets you the money from. You are not going direct to the wholesaler
when you walk into a branch office.
But doesn't the Branch give borrowers a better deal?
Many, many borrowers overpay on their mortgage every year from thinking that
this is true. Go straight to the source and you will get the best deal, right?
Why go to a middleman who will just put their share into the deal too.......I
actually thought that way at first too.
Now, this can be true, but in many cases a mortgage broker can pass the
mortgage money on to the borrower for less than a branch is able to even when
it is from the exact same wholesaler.
How can this be? It is all about overhead and profit. Branches generally have
higher overhead to pay and therefore must make more per loan than a broker.
As long as you get the mortgage from XYZ Bank and make the payments to XYZ bank,
doesn't it make sense to get the mortgage from the least expensive source?
This is a main advantage of going to a mortgage broker (in my opinion!) for
a borrower. At least when you can deal with an honest mortgage broker such as
myself. Read my rate sheets and call
a bank to see the points it will cost to get the "e-rates" available
from Daily Interest.
The amount that Daily Interest and The Prime Financial Group make on each loan
is usually smaller than the amount made by a bank. Most likely, we both end
up making the same amount of money on each mortgage loan, but if I don't have
to pay for a bigger building and marble floors and fancy furniture, I pass these
savings on to you, the borrower.
It must be noted that some brokers do not treat borrowers this way. There are
certainly some brokers who look at this as an opportunity to charge you a higher
rate and pocket more money. Watch out for these brokers. Of course, if you have
read this article, this is probably not you, but you can feel sorry for your
friends!
Many Different Wholesalers
Another advantage is that a mortgage broker can have arrangements with many
different wholesalers while a bank branch or lending arm has limited, and in
many cases only one, wholesaler to deal with.
One wholesaler may have a better deal on 30 year fixed rates this week and a
different one has the best deal on 15 year fixed this week.
A mortgage broker can save you the time of having to check all the wholesale
lenders yourself.
Difficult Situations
More than any other advantage, a mortgage broker is best suited for the difficult
situation where a borrower does not fit into the cookie cutter picture of the
"perfect borrower."
For the borrower who has bruised or damaged credit, for the self employed who
don't want to provide all those tax returns or for a borrower who is looking
for a creative financing solution, there really is no better way to go than
to a mortgage broker.
For instance, we actually have 45 different wholesalers to choose from and many
of these wholesalers have special "niche" loan programs to deal with
different situations.
I consider it my duty to borrowers to be up to date on the latest programs that
are available and have the knowledge to connect the borrower with the wholesaler
who is passing on a mortgage loan at the best rate to fit their unique situation.
Summary
After time in the mortgage industry, I cannot ever imagine going straight to
the bank for a mortgage loan after learning all the advantages of being able
to deal with a mortgage broker.
You may still decide to deal with a bank branch after reading this and that
is certainly your right and is one of the beauties of being able to use the
internet to research, but I certainly hope that you will give this broker an
opportunity to earn your business and your trust and help you not pay too much
for your mortgage.
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