When looking for a mortgage you have two choices, mortgage broker or bank. Ask yourself is a broker or bank going to give you the best possible rates. This should be a big deciding factor when making the decision whether to use a mortgage broker or bank.
If you use the bank route you would either walk into the bank where you have a checking account and sign the first contract drafted, or you would start the long and arduous process of bank shopping. As a shopper, you want the best deal you possibly can get (broker or bank), so you hop from bank to bank in an effort to acquire that perfect rate. But taking blind shots in the dark isn’t the best way. A mortgage broker is often a better choice, allowing someone who knows the territory to do the hunting for you. A mortgage broker can get you the best deal available in a much faster time than you could yourself.
A mortgage broker is a go-between for you and the lender, negotiating in your stead. Because mortgage brokers work so frequently with lenders, they have acquired a high level of understanding and trust that allows the process to proceed quickly. Lenders like the increased business that a loyal broker brings and will offer him or her, their best possible rates. The broker knows that if you are happy with your rate, you will refer friends, so he or she will search hard to make sure you’re happy. Therefore, involving a mortgage broker will almost always get you a better rate than anything you will find on your own.
When comparing broker or bank rates, it is important to remember that both the broker and the bank want to make money. In the case of a bank, this means that the rate they post or initially offer is likely higher than they are willing to approve you for. Through negotiation, the rate can often be lowered, but it takes work, and you still will likely not get it as low as a mortgage broker can. On the other hand, mortgage brokers want to make you happy. They have access to dozens of financial institutions, are experienced with each of them, and know that if you get a good rate, you’re going to suggest their services to a friend. Word of mouth is the best type of advertising, and brokers know from experience that an extra client is worth much more than a slightly higher commission.
Depending on the length of the mortgage, bank rates can vary anywhere from 3.2% to 6.75%. From a mortgage broker, these rates are likely to be closer to 2.85% and 3.99%, respectively. A near three percent interest difference is huge, and can account for a difference of hundreds of dollars every month that the borrower will save. Over the life of a 30-year mortgage of $200,000, the difference between a 6.75% interest rate and one provided by a broker of 3.99% comes out to over $120,000 in interest.
If you’re in the market for a mortgage, talking to a mortgage broker vs. bank can be extremely beneficial. You wouldn’t attempt crossing China without a map, after all, and the mortgage industry can be more formidable by far. A mortgage broker knows the ropes and has it is in his or her best interests to get you the best deal available. For these reasons the mortgage broker or bank decision should be easy.
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