Mortgage Broker 101: How They Get The Best Deals For Your Mortgage

Mortgage Broker 101: How They Get The Best Deals For Your Mortgage

What is a mortgage broker?

At best, they are someone who actively helps people get the best loan deals available in the market. These deals include low interest loans as well as debt consolidation. The mortgage market is very competitive, so a good mortgage broker can help you find the deals that give the most benefits for you.

what is a mortgage broker

 

 

 

 

 

 

 

 

 

 

The difference between mortgage brokers and traditional lending institutions

The former is much more experienced and knowledgeable than a typical lender. Not only do they underwrite and secure loans, but they are also responsible for the settlement process. This includes loan origination and loan settlement.

Essentially, they make money when a mortgage loan application is approved and the settlement is completed successfully. For this reason, they are willing to go above and beyond the call of duty to ensure that people get the most benefits possible.

However, these brokers do not have access to the entire lending community. Lending institutions rely heavily on referrals from other institutions like themselves, and while brokers may be able to get you a better deal from smaller lenders, they cannot guarantee anything.

They are also independent contractors. When you sign an agreement with them to obtain a loan, you are hiring them for specific services.

This means that they are responsible for finding the best loans for you and for providing any necessary background information and underwriting information to a lender. Their role is completely distinct from that of a loan officer.

In breaking down their differences further, take a look at these additional readings from Savings.com.au and YourMortgage.

The broker and borrower relationship

Being a mortgage broker also means that their services are not legal or regulated by any agency. Brokers do not have authority over laws that protect homeowners or consumers from predatory lending practices. They do not have the power to negotiate better terms on loans.

When a borrower chooses to work with a broker directly, said broker is responsible for collecting the complete set of loan offers from several lenders, evaluating each for their attractiveness and suitability to the needs of the borrower. The loan offer is then presented to the borrower.

Having a broker is often taken as an unfair advantage by borrowers. This is because, like an insurance salesman, they have to convince borrowers of the benefits of a particular mortgage product in order to get a commission. Without this compelling reason, the commission is based solely on the mortgage lender’s perceived benefit at the time of the sale.

If you want to know more about your power as a borrower, read our posts about comparing mortgages and your borrowing capacity.

Discover also how to calculate them.

More benefits for the borrower’s mortgage

In most cases, borrowers will be offered a better interest rate and a larger principal balance reduction if they choose the mortgage broker. This means a loss for the latter and possibly another financial transaction for the former.

A broker is best avoided because it presents a conflict of interest. Instead of working with a mortgage company directly, a broker’s job is to obtain the best loan offers for the borrower’s mortgage.

Their success is dependent on gaining business from the mortgage company. They may attempt to persuade potential borrowers to choose a high interest rate mortgage or a low interest rate mortgage by offering them a discount rate or waived processing fees. They will use these same incentives to secure financing from another source.

When there are several lenders to choose from, the broker’s goal is to secure one loan at a low rate and one that is more favorable to them financially. When there are multiple lenders, the broker can secure several loans at lower rates by putting together a package that attracts interest from several lenders.

This package may be attractive to several lenders who will compete for the business of the homeowner. In short, a mortgage broker is well placed to secure multiple loans for the borrower at lower costs than the lender would charge.