Very rarely, someone will call me and ask me what the difference is between a getting a mortgage through a bank and getting one through a mortgage broker. I won't give you the boring, biased list as most brokers do but I will tell you the truth. So, why do some people choose a bank and why do others want a broker?
Firstly, marketing is a significant factor in all of it. Marketing and advertising shape a consumers perspective about which route is the safest. However, in my opinion, no matter how much money gets spent on advertising, advertising will never teach you, the consumer, about what you need to know. In fact, advertising does quite the opposite - it withholds what you need to know so you can make decisions based on misaligned beliefs which in turn, makes banks and other lenders billions. Think about that.
If you're like most consumers out there, you don't spend your time researching mortgage terms and various contracts, sorting through the fine print. Why would you? That's not your job. It's the duty of your mortgage professional whether they be in the "branch" or your local mortgage brokerage.
Does this always happen, however? Does the consumer still get educated on various mortgage contracts? Sometimes they do, which is excellent, but most times, unfortunately, they do not.
The reality is if you choose to obtain financing directly from one particular bank there isn't a whole lot of mortgage contracts to sort through and explain to you. That's because the bank can only offer you their mortgage products. You may not see the problem with this since the rate is reasonable, for example, but failing do your homework in this area can cost you ALOT of money.
Here's what I mean. There are a few components to every mortgage, which left unchecked, can result in a substantial financial loss (think in terms contracts).
Do you know the pre-payment industry is a secure multi-million dollar revenue generator for most banks and various other lenders, even those accessed through the broker channel? The reason it's a reliable stream of PASSIVE income is that most consumers don't understand how penalties get calculated until they're in a situation where they are trying to sell their home or refinance their mortgage. You're probably thinking you've heard this all before and it can't be that bad. Well, it's definitely BAD NEWS. Firstly, it's your hard-earned money, and secondly, if you knew of lenders that had a more favorable way of calculating penalties at the beginning, you wouldn't be dishing out a $17,000 prepayment penalty, for example, just because your life situation changed and you need to sell or refinance.
Why brokers prevail in this area.
Good brokers will always pair you with the best lender for you. Believe it or not, some lenders offered through the broker channel have the lowest forms of pre-payment penalties around and often, they offer even better rates than your bank, too. Why not ensure you get the best rate and the best set of terms?
To become mortgage-free sooner, you'll want to pay down your mortgage as soon as you can. DO SOMETHING TODAY, if you can. Switch your mortgage payments to bi-weekly, accelerated if you're currently paying on a monthly basis. You'll shave your mortgage amortization down a few years just by completing this straightforward task. Over the next twenty or so years; you will pay way less interest to your financial institution and much more principal to YOUR equity bank.
Now, let's say you decide to do this TODAY and your bank won't allow it. It then becomes an issue of how much you are allowed to pre-pay within a given year. Ahh, the caveat - and also why prepayment privileges are essential. You'll want to be signed up with a lender who offers very flexible and generous prepayment options. I'm happy to say that lenders through the broker channel provide great privileges, some much more than your everyday bank.
Simply stated, banks do not offer the most flexible service in this ever-changing world of having no time. All appointments must be completed at the branch or adhere to rigid timelines. Closings also take longer due to the corporate and political process that must take place. Banks are hardly ever available on their cell phones or outside of business hours. Brokers, on the other hand, are usually available more often. This means you get more attention and in turn, a better understanding of what you are doing. It's a way more personal experience. So, if you don't like the corporate environment and want to have a more "real" experience, you'll probably feel much better working with a broker you trust.
Approvals that banks do not dare give.
If you're self-employed and or have bruised credit, you may feel shunned as a loyal bank customer. I hear the same thing over and over again, which are the voices of disappointment when it comes to banks not being able to offer mortgage financing to their long-term customers. Brokers have many sources they can utilize for borrowers who don't claim much on their taxes due to being self-employed or those who have poor credit. You can still accomplish your goals in real estate by working with someone who understands where to place your application. Believe it or not, I've had some borrowers come to me who were declined by a major bank but were later approved, with a BETTER rate, with another lender. Funny the way things work out sometimes, isn't it?
Due to marketing and penniless gossip, some consumers fear the high-costs associated with using mortgage brokers to complete financing. I'm here to tell you this is information is not true. Most times, when arranging a standard mortgage such as the one you would obtain at the bank, for example, there is no fee payable by the consumer to the broker. Times when there would be a fee, for example, is if you arranged a private loan and there is no compensation getting paid to the broker. Sometimes fees are payable if the work that got done was extraordinary or took a significant amount of time. This is the truth. Of course, all of these aspects of a mortgage deal would be discussed beforehand to ensure everyone is all on the same page and in agreement. I won't lie and say that not all brokers charge fees. I've unfortunately witnessed brokers who have charged astronomical amounts of brokerage fees to borrowers... this is to say, you must find someone reputable to work with and understand why you are paying what you are.
For the most part, mortgage brokers receive compensation directly from the lenders they use.
Thanks for taking the time to read this article. It's not to say banks are this evil entity no one should use. Banks have their place. My point is brokers create competitiveness in the market because we can de-monopolize banks and their stronghold and bring better deals directly to the consumer.
For all of your mortgage needs, call 647-773-4849.
By: Sarah Colucci
Senior Mortgage Agent, Lic. M14000929
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Sarah A. Colucci, Mortgage Agent Lic. M14000929
Mortgage Edge, FSCO Lic. 10680