When shopping for the best mortgage or the best mortgage rate, many home buyers enlist the services of a mortgage broker to find them the best terms and rates. Since the real estate market crash in 2008, however, the business practices of brokers have come under scrutiny and the question of whether they are acting in the customers' best interests has been raised. Working with an experienced, competent mortgage broker can help you find the right mortgage, but there are both advantages and disadvantages that you should consider before committing to one.
Advantages:
Saves You the Legwork
Mortgage brokers have regular contact with a wide variety of lenders, some
of whom you may not even know about. The alternative to working with a broker
is to call up dozens of lenders and compare their mortgage terms and rates on
your own. A broker saves you the time and headache of having to do that. A
broker also can steer you away from certain lenders with onerous payment
terms buried in their mortgage contracts to help you find a better
mortgage.
Brokers May Have More Access
Some lenders work exclusively with mortgage brokers and rely on them to be
the gatekeepers to bring them suitable clients. You may not be able to call
some lenders up directly to get a retail mortgage. Brokers may also be
able to get special rates from lenders due to the volume of business generated
that might be lower than you can get on your own.
You May Save Some Fees
There are several different types of fees that can be involved in
taking on a new mortgage or working with a new lender, including origination
fees, application fees, and appraisal fees. In some cases, mortgage
brokers may be able to get lenders to waive some or all of these fees which can
save you hundreds to thousands of dollars.
Disadvantages:
Brokers' Interests May Not Align with
Your Own
Your ultimate goal in shopping for a mortgage is to find one with an
affordable interest rate and low fees. You are in it for the long haul. A
mortgage broker, on the other hand, often gets paid a fee from the lender for bringing
in the business. This fee can be based on the amount of the mortgage, and will
vary amongst lenders. A broker's goal, therefore, is to get you into a mortgage
that maximizes their compensation. The 2008 market crash revealed
that many brokers were getting their clients into mortgages that they could not
afford over time.
You May Not Be Getting the Best Deal
Many homebuyers simply assume that a broker can deliver a better mortgage
than they could get on their own, but this is not always the case. Some lenders
may offer homebuyers the exact same terms and rates that they offer mortgage
brokers (sometimes, even better). It never hurts to shop around on your own to
see if your broker is really offering you a great deal.
Brokers Often Do Not Guarantee Estimates
When a mortgage broker first presents you with offers from lenders, they
often use the term "good faith estimate." This means that the broker
believes that the offer will embody the final terms of the deal, but this is
not always the case. In some cases, the lender may change the terms based on
your actual application and you may end up paying a higher rate or additional
fees.
Some Lenders Do Not Work with
Mortgage Brokers at All
This is an increasing trend since 2008, as some lenders are finding that
broker-originated mortgages were more likely to go into default than direct
lending. By working through a broker, you may not have access to these lenders,
some of whom may be able to offer you better mortgage terms than you can get
through the broker.
The Bottom Line
Mortgage brokers may be able to find you the loan of your dreams, but you
should weigh the potential downsides before hiring one. We always suggest that
you begin your search at I Want a Better Mortgage
(iWantaBetterMortgage.Com). Spend
some time contacting lenders directly to obtain an understanding of what
mortgages may be available to you. Work with a reliable mortgage broker with
solid references and ask them to guarantee their loan estimates.