When shopping for a mortgage, 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 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.
Saves You The Legwork
Mortgage brokers have regular contact with a wide variety of lenders, some of whom you may not even know about. A broker also can steer you away from certain lenders with onerous payment terms buried in their mortgage contracts. That said, it is beneficial to do some research of your own before meeting with a broker. An easy way to quickly get a sense of the average rates available for the type of mortgage you're applying for is to use a mortgage calculator. Tools like this will let you compare rates easily and provide you with extra knowledge when assessing a mortgage broker's credibility.
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
Several different types of fees 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.
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 deal 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. As mentioned earlier, using a mortgage calculator is an easy way to fact check if your broker is offering you a good 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. 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.