Mortgage broker or banker?
So you’ve just gone out and looked at approximately 285 houses, finally deciding on that perfect place. Now comes what’s arguably the hardest part of the home buying process, which is getting financing for the thing. Of course, you can just avoid this whole process completely by paying cash for the house, but who has a quarter-million dollars just hanging around? And that’s just for a cheap place. Unless you’re planning on saving for a long time before buying that house, you’ll have to get a mortgage on it.
When it comes to getting a mortgage, there are two choices. You can either go to your local loan officer, who represents just the bank they work for. Or, alternatively, you can go with a mortgage broker, which is a liaison between you and a finance company. Which should you choose? It’s not such an easy question.
Advantages of using a banker
The big advantage of using your local banker is the fact that they have most of your info on file already, which speeds up the whole application process. When you go to a mortgage broker, they have to create a whole new application for your mortgage, since the lender they’ll submit to doesn’t know you from a hole in the ground.
Also, often your bank will have additional staff on the record. If your down payment is coming from your savings account, just a few taps on a keyboard can verify the money is there and has been there long enough to satisfy CMHC requirements. The bank can also take a quick look into your account to make sure your income is steady. A mortgage broker will ask a borrower to supply copies of these records, so a borrower saves time by sticking with his bank.
Also, if you’ve been a customer of that particular bank for a while, you might have fostered a relationship with the loan officer. Perhaps this is your 2nd or 3rd mortgage, and you’ve used the same girl for all of them, and she’s treated you well the whole time. You’re certain the rate being offered is as low as the bank will go because you trust the loans officer. A good relationship with whoever handles your mortgage is essential.
Many mortgage brokers will tout the number of lenders they work with as a major advantage. The fact is, most brokers send all their AAA business to just one or two lenders since they know those lenders so well. It kind of ruins the whole mantra of shopping your mortgage hard to get the best deal, doesn’t it?
Advantages of using a broker
Saying what I just said, the big advantage of using a mortgage broker is the ability to shop your deal to the best lender for your situation.
If you know you’re going to make large lump sum payments, then a lender who will let you do that without an interest penalty is ideal. Or, maybe you know you’re not going to pay down a nickel more than absolutely necessary since you’re in no hurry to pay down your mortgage. If that’s the case, then you’ll want to go with a mortgage that has sacrifices prepayment privileges in exchange for a low rate. A good broker will ask these questions and find you a lender that fits your needs.
Another advantage of using a broker is flexibility. One of the reasons online banking has become popular is that people just don’t have time to go to the bank when it’s open. And it’s the same thing with arranging their mortgage. So, the broker comes to them, maybe after dinner or on a weekend, and starts the ball rolling on their deal then. What a great deal for those people who have to work during normal banker’s hours.
Banks are starting to eat away at this advantage though, introducing mobile mortgage people who will come to your house.
Which should you use
Well, that’s a tough call.
Using both a broker or a banker has merit. If you’re a disorganized person who hates a lot of paperwork, maybe using a broker isn’t the answer. Or, if you really have no idea about the whole process, maybe a mortgage broker is the route to go. Ultimately, the choice is up to you.
But, if you’re relatively astute financially, you might want to weigh out the options yourself and just approach the lender you like the most on your own. Mortgages aren’t that complicated, most everyone can understand the terms by educating themselves. Doing a little research beforehand will make either route easier.
Hates a lot of paperwork? We use a mortgage broker and I don’t recall there being any more paperwork than going through a banker.
Even if there is more, let’s not forget that there’s a price for convenience. Paying a half a point more because you didn’t shop around can cost you enormous amounts of money. If someone says ‘you save paperwork by going with a bank’, that’s one thing. If instead you say ‘it’ll cost you $8000 to save that paperwork, NOW are you still going to deal with your local paper-saving friendly banker?
Here’s a tip that can save money. When you lock in your rates for 90 days as most folks do, they’ll tell you that it’ll go down if rates go down, but can’t go up past whatever you just set it to. If the rate goes down – actually demand that at closing your negotiated rate goes down by the same amount. I’m pretty sure this is a ‘guarantee’ that never gets used. Except I actually used it last time we negotiated a mortgage, shaved another 1/4 point off. The broker did *not* like it, was almost offended that I asked. But ask I did, and got it.
Often when the mortgage is is funded the lender could refuse to make any changes at “closing” and if you don’t close at “closing” you will pay interest to sellers or worse not get possession. Never leave this to closing you could wind up costing you more int he long run. Not good advice, ask weeks ahead!
I have just gone through the refinance process with a mortgage broker and this article hits some key points that I just experienced. Even though I used this broker for my original mortgage, since we were going through a different lender this time they needed all the documentation for income, insurance, banking info, etc, etc, etc… it’s a lot of paper. The trade off was that we got a very good rate.
Another key point is that you have to have a good relationship with your mortgage specialist. They have to listen to what is important to you. There are so many choices when it comes to mortgages that the specialist should be a teacher first, advisor second, and a sales person a distant third..
It has actually been shown that loyalty to ones Financial Institution will on average lead to a higher rate than people who generate multiple rate quotes. Anecdotally any mortgage professional can tell you the same. There is an implied comfort with working with the same loan officer but the business model is actually quite different. Comfort, for a bank means an opportunity to take advantage of you on interest rates.
We used a mortgage broker and boy was there a TON of paperwork. Especially being self employed, they wanted to know every little detail about every transaction. It can be a pain, but overall I am glad we used the broker because we got the best interest rate possible and better than what the local banker could get us.
PS. You should delete the spam comment above
Hi Nelson – nice post – it’s true we brokers will tend to spread our AAA files among only a couple of lenders – yes we do have access to 40 plus lenders, but when we do volume with a few, things go really smoothly, and our deals get priority status with the underwriters.
And some mortgage brokers choose (unwisely) to compete on rate, and can pass on their volume bonus credits to their customers and buy down the interest rate below even that offered by the bank.
Ironically, my several of my relatives (including my own daughter!) deal directly with their bank – for some of the reasons you cite above.
As I mentioned on one of your previous posts, the unspoken truth is we brokers have a hard time competing for and winning business from clients who are AAA deals – since there is no such thing as a stupid consumer anymore.
In general, AAA deals are rate shoppers with little loyalty; mortgage brokers get stung by these people all the time.
However, there are many more people out there whose file is flawed in some way to render it either marginally attractive or even down right unattractive to an ‘A’ lender. In fact, ‘A’ lenders, accountants, lawyers, and trustees often refer such files to we mortgage brokers.
While I would love to do more simple, no brainer AAA deals, the fact is the vast majority of the mortgages I arrange are ones that are hard to do (often “impossible”) – and that’s my value proposition.
[quote]And some mortgage brokers choose (unwisely) to compete on rate, and can pass on their volume bonus credits to their customers and buy down the interest rate below even that offered by the bank.[/quote]
Once the mortgage is negotiated and in place you know the ONLY thing I care about? The rate.
Salespeople sometimes will find reasons to gloss over things like how if they pool their business with a few carriers they make more money – even if they’re not getting you the lowest rate.As for service or smoothness in operations, you pay the mortgage out ofyour account every month, and that’s it. Nobody cares about anything else in between negotiations.
Your point is well taken. When I say it is unwise, I mean strictly from the point of view of a commissioned salesperson trying to maximize their income while providing value to their clients.
It is very difficult to sustain and grow a mortgage brokerage business if your only value proposition is guaranteeing the lowest interest rate.
There are many people out there who have a hard time qualifying for a AAA mortgage, and for them simply the result of securing a mortgage when they have been turned down elsewhere is of paramount importance.
Guaranteeing the lowest rate doesn’t have to be the ‘only’ value proposition. That’s yet another justification for selling somebody something they don’t want.
It’d be a whole different market if mortgage brokers actually showed the lowest rates then attempted to upsell to a higher rate, thus letting the consumer decide if they wanted to pay a higher interest rate. Someone might take something other than the lowest rate, but I bet it wouldn’t happen very often.
There are a lot of other things a broker can explain better.
Overall I have seen that rate is not everything. It is just another factor.
Any broker wondering how to get clients then remember only one thing – put client first.
One single satisfied client will give you much more in return than just commission.
Although being a mortgage agent I do have bias and conflict of interest, but I would say that go and talk to few mortgage brokers. You would be surprised what value they have to offer.
I would choose a banker because I’ve all of my deposits,checking accounts,credit cards with one bank .So,because of this ongoing relationship I suppose i would get a better deal from my bank.
Xavier, a lot of times, as a broker, we can place the mortgage at your very own branch giving you a better rate than they can offer. A branch needs to stay profitable and the only way they can do that is by giving higher rates. …. The banks can discount further to a broker as we provide the first level of underwriting service and do not have expenses for them like a branch (health, dental, office space etc)
Hope that helps!
Good writing, it was original I can tell! Keep up the hard work!
We went through a mortgage broker for our new home we just purchased. Yes there was a lot of paperwork, but the staff was so friendly and the broker was extremely educated. He walked us through all the steps and got us an amazingly low rate. Before going to the broker, we did stop by our home branch for the bank we use. They gave us a rate that was higher than the broker’s and there were a lot of conditions. I would suggest going to a broker because they are able to structure your financing in a way that works for you.
Good article. As a mortgage broker professional that specializes in the Private & B lending, I don’t compete with the banks. They key advantage to using a broker is having lender options as opposed to only what your bank offers . Not all financial institutions are created equal so having a broker that can filter that is a definite plus.
… On a side note… not all mortgage brokers are created equal…
Both banks and traditional brokers are a ripoff these days. If a bank offers a good deal, it will rip you off with penalties or higher rates at refinancing or renewals. Banks and insurance companies are modern-day criminals enforcing the “soft” slavery. Of course, if you don’t otherwise qualify then a traditional broker may be the only way to go, since they routinely make up documents to get the mortgage deals. There have been at least a few scandals out there. But if you all of your documents are in order, then even in a ghetto like Canada, there are a now few online brokerages where one can search for the available mortgage deals. These online brokerages are eventually backed by humans but they are much more transparent. Some even offer cash-backs, passing on some of the commissions. In any case, go for a NON-COLLATERAL CHARGE mortgage, preferably from the non-bank lender (e.g. wholesale or credit union).