Should I deal with a Mortgage Broker?

by Murray Anderson

For a new homebuyer the world of real estate with agents, home inspectors, offers, acceptances, title searches, surveys and all the other terms that you run into can be pretty confusing. New homebuyers are often tempted to try and simplify at least part of the home buying process by just going to their bank to arrange for their mortgage financing. In fact a study of first time homebuyers in Canada showed that over 50% accepted the first rate their bank offered them.

While working through your bank is undoubtedly convenient, it can also be expensive. If you just walk into your bank and tell them you are looking for a mortgage, then accept their offer you're likely costing yourself money. Keep in mind, lending money is a competitive business and banks, credit unions and wholesale mortgage lenders all want your business. In some ways getting a mortgage is like buying a car, you don't often get the best deal without shopping around and negotiating. A mortgage broker can take on some of that shopping for you.

What does a mortgage broker do?

A mortgage broker acts as a middleman. He scouts the market for mortgage lenders (people willing to lend money) and puts together a deal that has not just the best interest rate, but also includes terms and conditions that suit you, the buyer.

A mortgage broker deal with all kinds of people, who lend money, not just banks. In fact lots of people a mortgage broker deals with don’t deal directly with the public, so without a mortgage broker, you wouldn't even know they existed. By using a mortgage broker, you gain access to these other sources of money.

Mortgage brokers can also help guide you through all the financial paperwork required to apply for a mortgage and help you negotiate terms and conditions so your mortgage actually fits you.

So why not just negotiate with my bank?

Remember the loan or mortgage officer at your bank wants to sell you a mortgage, but they’ve only one product to sell. - mortgages sold by their bank, and these may include terms and conditions that favor the bank rather than you. By using a mortgage broker you expand your list of potential lenders and give yourself a little more options.

As well since mortgage brokerages are relatively small operations, using a mortgage broker can help personalize the process and eliminate that feeling you're being processed by an institution.

Nobody does anything for nothing, what does a mortgage broker cost?

Mortgage brokers are paid in one of two ways. Either they are paid a commission by the lenders (in which case there is no direct cost to you the borrower), or they do charge a fee, but since they're saving you money on your mortgage, you actually end up saving some money in the long run. Also, remember, a mortgage broker doesn't get paid until your deal is completed, so they have a significant incentive to make sure they put together a mortgage deal you're happy with.

Sounds too god to be true, what's the downside?
One of the disadvantages of working through a mortgage broker is the mortgage process can take a little longer than dealing directly with your bank or credit union. Since the mortgage broker is acting as a middleman, he has to go back and forth between you and the lenders to ensure all paperwork and financial arrangements are in place.

Also, unfortunately in some states mortgage brokers aren’t licensed or certified, so the business can attract a certain 'fly by night' type of operator. If your state is like this, you can minimize your risk by dealing only with brokers who have been in business for a few years, checking them out with your Better Business Bureau and if possible getting personal references from friends, relatives or even real estate professionals.

Using a mortgage broker isn’t a guarantee your home buying and mortgage application process will go exactly as you hoped. However, in many cases using a mortgage broker can save you significant money and that alone should make a mortgage broker an option you want to explore.