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What is a Mortgage Broker?

by | Aug 18, 2015

Many people ask the question what is a mortgage broker? There are countless opinions on whether it is smarter to work directly with a bank when acquiring a mortgage or whether it is more beneficial to work through a mortgage broker. Opinions fall in favor of both sides, but often more because of a lack of knowledge than a fair comparison. The question what is a mortgage broker can be answered by first defining a mortgage broker and then explaining what benefits they can offer you.
So exactly what are mortgage brokers? Simply stated, a mortgage broker is an intermediary who negotiates between the borrower and the lender. While a “middle-man” is usually seen as detrimental in any situation, in this case it can be a great advantage. A mortgage broker is not tied to a single institution, so he or she can simultaneously negotiate with multiple lenders when looking for a suitable mortgage. By so doing, the broker is in a position to compare and contrast rates, meaning you get the best possible deal without having to do any of the work.
Banks are notorious for being difficult to work with. They keep short hours, they require borrowers to fill out vast amounts of paperwork, and they make the most money by getting you to sign at the highest interest rate possible. Hiring a mortgage broker resolves all of these problems. Mortgage brokers are paid by commission, so they are extremely flexible in their schedule and are often willing to drop by your home or office to discuss matters or pick up required documents. Mortgages are their business, so they are familiar with the necessary paperwork and can prepare much of it for you. Also, they make the most money when you tell your friends about them, so they work hard to find you the best interest rate possible. And, because they are almost always paid by the lender, they are at no cost to you as the borrower.
Banks have stringent requirements that must be met during the mortgage approval process, particularly dealing with credit scores. If a potential borrower has less than perfect credit, the bank may decide that the possible gain may not be worth the risk and will outright reject the application. Brokers, on the other hand, get nothing if you don’t get approved for a mortgage. They work with dozens of lenders, including many non-bank organizations, and can frequently find lenders willing to work with a borrower with damaged credit. The lender makes money off of the interest, the broker is paid a commission by the lender, and the borrower gets approved for a lower interest rate. All parties win.
It does occur that an individual receives a better interest rate directly from a bank. But this is by far the exception, and it usually only occurs if the person is willing to intensely research, hunt, and negotiate for an extended period of time. A mortgage broker is already set up to take care of that entire process for you, and will most likely provide you with a more favorable result in the end. This should help you answer the question exactly what is a mortgage broker and let you know what they can do to help you obtain a loan.

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