EVERY YEAR, homebuyers unwittingly pay higher mortgage interest than they should— sometimes thousands of dollars more— because they don’ t know how to find the best loans. The Consumer Financial Protection Bureau( CFPB) estimates that 47 percent of consumers don’ t shop around to find the most affordable mortgage. They simply get their loan through the first mortgage professional they speak with— or the first result that shows up in their Google search. That’ s too bad, because it could be costing them a ton of money.
For anyone who doesn’ t work in the real estate industry or a related field, the language of mortgages can be very confusing. In fact, when talking about mortgages, many people use the words“ broker” and“ lender / banker” interchangeably. But the truth is, there are big differences between them, and knowing what they are can improve your experience and save you a lot of money. Competition Saves Consumers Money For example, on a $ 250,000, 30-year, fixed-rate loan, a half-point difference on the mortgage interest rate means paying $ 75 extra per month, resulting in $ 27,000 in extra payments over the life of the loan. And depending on how the loan is structured and how high lenders’ fees are, the costs could be even more. That’ s why it pays to shop around, and mortgage brokers do that for you.
Even if a homebuyer has already been prequalified by another lender, it’ s always worth calling a mortgage broker to see if they have a program that is better suited to that buyer’ s particular situation.
According to data from the Thomson Reuters secondary mortgage platform, mortgage brokers save their clients one-quarter percent on their mortgage interest rates over the rates offered by bankers. That’ s more than $ 10,000 over the life of a typical $ 250,000 loan. In more expensive markets, the savings are even bigger. It makes sense: competition drives prices down. Brokers have relationships with dozens of lenders who compete against each other for your business.
There’ s something else consumers should know when shopping around: if you call a bank and ask for the interest rate on a 30-year fixed-rate loan, they might quote you one, but there’ s no guarantee you’ ll actually get that rate. Rates change every day, and the rate a consumer gets depends on their down payment, credit score, and other qualifications. Nobody knows what their actual interest rate will be until they apply for a loan and lock in a rate.
What Are Their Incentives?
Mortgage brokers cannot be compensated based on the terms and conditions of your loan. That helps ensure your broker gets you the best loan for you, not the one that pays him or her the highest commission. The same is not true for a bank’ s loan originator. And that extra compensation can easily be disguised in the rate sheet where a typical consumer wouldn’ t recognize it. Is a banker going to recommend the loan that makes the most economic sense for you or the one that compensates him or her best?
Mortgage brokers are vetted, licensed, and bonded. They are required to take continuing education every year. Loan originators who work for banks are not licensed; they’ re simply registered. Work with a Local Mortgage brokers live and work locally. You’ ll have their email address and cell phone number whenever questions about your loan arise. Brokers know they’ re going to run into you again at the supermarket or at their kids’ ball games, so they want to make sure you’ re happy with their service and eager to give them great reviews online and refer your friends to them.
Mortgage brokers don’ t have the advertising budgets that the big banks do, so they rely very heavily on referrals from real estate professionals and past clients.
Putting a loan together is a long, cumbersome, and heavily regulated process. It is crucial that your loan is done correctly and on time for your closing. A mortgage broker who can’ t perform on time will quickly go out of business. Does a big-bank loan originator who lives across the country risk his or her professional reputation if your closing is delayed?
Finally, most banks are huge and offer all kinds of loans, not just mortgages. A mortgage broker is a specialist who only works with mortgages. When you buy your next home, get a local expert in your corner. Work with a mortgage broker.
Born and raised in Portland, Oregon, Andy Harris is a nationally recognized Mortgage Professional who started his career back in 2002 after spending several years showing interest in real estate and finance. Andy’ s prior experience in business management and client relations brought him success his first year becoming the highest annual producing Loan Officer in the Western Region. Andy earned many awards as a young Mortgage Professional including the President’ s Million Dollar Club and Leadership Council for Outstanding Achievement.
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