Broker vs. Lender Mortgages – What to Choose?June 21, 2012
If you are in the market for a mortgage, whether your first or a renewal, you have the option of applying for a mortgage through a mortgage broker or you can apply directly with a lender such as a bank, credit union, or other financer. So what the differences, and what are the advantages of each?
The Mortgage Broker
A mortgage broker works as an intermediary to provide you with a mortgage. They take your application and apply to several different lenders, then report back to you with the best rates and terms. In return for providing them with business, the mortgage broker earns a commission which is paid by the lender.
Advantages: Since the broker takes your single application and applies to many different lenders, you save time by not having to fill out applications for each lender. Also, since the mortgage broker brings lots of business to the lenders they can get a volume discount on mortgage rates. Applicants with less than perfect credit ratings will likely have better luck with a broker, as they will know which lenders will be more likely to approve your application. They also have access to non-public deals and can negotiate with lenders on you behalf.
Disadvantages: If you don’t have a pre-existing relationship with the broker you are essentially “starting from scratch” and may not be able to get the same rate that their renewing clients receive. Also, if you are in a hurry for financing keep in mind that mortgage brokers can take up to a week to get back to you with the details of mortgage offers.
A lender is any type of institution who directly holds your mortgage, usually a type of bank. You apply directly with the lender, and they report back what the best rate is that they can offer you. The lender does not earn a commission; all earnings come from the interest you pay on your mortgage.
Advantages: If you have a pre-existing relationship with a particular lender they may offer you a discounted rate to keep your business. Some banks also offer financial incentives to capture new mortgage business. Also, since you work directly with a mortgage expert you will most likely receive your mortgage offer within 24 hours.
Disadvantages: A bank can only make a single offer, so if you want to determine if you are receiving the best mortgage rate you will need to apply with several institutions, which will take you some time. Many lenders are also less willing to take on higher-risk mortgages, so if your credit or earnings are not within their guidelines you have to keep trying with different lenders.
Choosing a Lender / Mortgage Broker
Once you have decided which avenue you are going to use to apply for your mortgage, how do you choose where to apply? It’s a bit of a personal choice, however keep in mind that you don’t have to go with your first offer – you are welcome to shop around until you have a mortgage that meets your expectations.