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In the wake of the 2008 subprime crisis, a spotlight was shone upon the practices of the entire mortgage industry. No one was spared the intense scrutiny – not even the people who brokered the mortgages. Now almost a decade later, is your apprehension about hiring a mortgage broker still justified?
If you’re in the market for a property and are on the fence about hiring a broker, then this article should help shed some light on the pros and cons of hiring a mortgage broker.
So what are some perks of hiring a mortgage broker?
Finalizing a mortgage deal is no joke. A lot of formality and bureaucracy is involved. If you’re an average Joe like me, you’re probably already buried under personal and professional responsibilities. Where do you find the time and energy to even shop for a mortgage?
I mean, it’s not like you can meet just one lender and finalize the deal. To get the best offer, you must compare different lenders and shop for different rates. What a mammoth task!
This is one of the most common reasons why people seek help from a broker. Brokers are professionals with appropriate training and years of deep experience. They know the market rates and can set your expectations as to what kind of rate you can expect given your financial situation.
Mortgage brokers talk to banks, prepare the necessary documents and schedule meetings on your behalf. From the pre-approval stage to closing, a broker acts as your trusted partner in finding the most cost-effective mortgage contract.
In most cases, a broker has more access to institutional lenders than a common borrower. There are banks which prefer having a short but effective session with a professional broker rather than spending hours explaining the basics of a mortgage loan to a layman customer.
A large number of mortgage lenders in the country work exclusively with brokers to whom they offer wholesale rates. Looking for a retail mortgage? Good luck placing a call to such a busy lender!
In addition, everybody knows that wholesale rates are reasonably lower than the retail rate in 99% of cases.
The rationale behind this is obvious:
A broker ensures a large volume of business for a lender. Consequently, they are in a better position to negotiate a more competitive rate.
More lenders mean more options. Ask probing questions to figure out if your broker has good relationships with a large number of reputed lenders. With numerous mortgage options, it is much easier for the broker to find a deal matching your financial condition and preferences.
The guidance or advice that a broker gives to his/her client is invaluable. You can spend countless hours planning and managing everything on your own, but are you doing the right things?
I can hear you saying now, aw does it really make a difference?
Yes, it really does. No matter how much homework you do, you are unlikely to acquire the mortgage-related know-how that a professional has acquired over years of practice.
A broker should also be experienced in breaking the industry down into simple concepts that you can digest. You shouldn’t need to go through a big pile of financial documents or to search for the meanings of complicated financial terms in Google.
Look for brokers like BrokerCo Sunshine Coast, who offer a free strategy consultation. Even a short session like this can prime you for success in your mortgage hunt.
These aren’t negatives per se, but they are things that could cause you to consider against hiring a broker.
It costs money
All the aforementioned perks don’t come free. While it’s a great idea to make full use of the free strategy sessions with a few brokers, you’ll eventually have to pay for their services.
Fees are typically set at around 1% of the loan amount. While this doesn’t look scary right now, once you consider how much your mortgage can be, the final sum is probably not going to be that negligible.
This comes out of your pocket on the final closing of the deal.
You may be tempted to go it alone. However, consider this:
While it is true that you’re not paying anything upfront, but would you end up lacking the due diligence? Could you possibly end up with a far higher interest rate than if you had gone with a broker?
Weigh the broker costs against what you might lose if you don’t get a good deal on your mortgage.
Missing the Best Deal
Be careful of incompetent brokers.
It is also not always the case that a broker can find you the best deal in the market. There are some lenders who offer exactly the same rate to an individual customer as they offer to a broker. If this is the case, the mortgage commission that you pay is only waste of money.
What a mortgage broker shows you in the first instance is good faith estimates. These are the estimates that a broker believes to be there in the final deal. However, based on your application, the bank may change some of the terms. You are then ending up getting a sub-optimal rate.
Next, comes the question of accessibility. While it is true that some lenders prefer to talk to brokers, others banks don’t like a middleman. They’d much rather talk directly to the customer. If you’re hiring a broker, you’re losing access to such banks.
You probably know by now not to trust any old person who claims to be a “professional”. This applies to mortgage brokers too.
The fee or commission that a broker earns from a lender varies widely across lenders. That is why a mortgage broker tries to finalize a deal with a lender which offers him/her the best commission.
This commission also depends on the amount of the loan granted. A mortgage broker without professional ethics is surely going to encourage you for a bigger amount of loan. It happens over the course of time that the borrower eventually finds it difficult to finance the loan.
The Bottom Line
Choosing a mortgage broker is not easy, but hopefully this article can give you some pointers on what to look out for. Hey, at least choosing the right mortgage broker is going to be far easier than shopping and choosing the right loan.
By now, you have seen two sides of the coin. If you’re still unsure as to whether to hire a broker or not, here’s my advice: just engage a broker first.
In most of the cases, mortgage brokers provide great relief. The pros are likely to outweigh the cons and you’ll end up with greater peace of mind.