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How to Choose Between a Mortgage Broker and Bank

A mortgage broker and a bank are both institutions, which help you borrow loans for your requirements. This Buzzle article will help you understand how to choose between a mortgage broker and bank.
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Tip to choose between a mortgage broker and a bank
On July 11, 2014, the CFPB issued supervisory and enforcement guidance entitled, "Policy Guidance on Supervisory and Enforcement Considerations Relevant to Mortgage Brokers Transitioning to Mini-Correspondent Lenders." The guidance addresses regulatory requirements applicable to mortgage brokers under the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA).

A great majority of us apply for loans at some point in our lives. They could be for buying a house, car, property, education, or some sort of investment. The first and foremost thing one does while applying for a loan is to go to a bank. While some of us take this option, there are people who prefer going through a mortgage broker. This is preferred by many for certain reasons. There are many factors to be considered while wanting to select either one of these two institutions, for which a bank vs. mortgage broker comparison chart needs to be drafted for a better understanding. A brief of the same is given in the paragraphs below, which tells you how to choose between a mortgage broker and bank, and the reasons for the same.

Mortgage Broker

In layman's language, a mortgage broker is a go-between or an agent between borrowers and lenders. He is the one who will lead you to the lenders. He will listen to your loan requirement and get the necessary paperwork and documentation done from you. Then, he will negotiate with the people who will lend you money and pass on all your details to them. He will then take their approval for the loan, and you will handed the funds in the lender's name. The broker will collect a commission from the lender for his services.

Bank

A bank is a financial institution, which accepts deposits and uses them for lending. In this case, you need not go through an agent; you can do it alone. When you approach a bank with a loan requirement, you will either be dealing with a loan officer or a mortgage banker. Here, the officer will represent the bank and will sell the loan directly to you, while continuing to service the loan. Generally, this approach is preferred by people who have an account/s at that particular bank, as well as a good credit history.

Factors to be Considered

Choosing between two options can be quite a daunting task. Go through the following list to know what things need to be considered before making a decision.

Mortgage Broker Bank
Product Access
He has access to many lenders, and this includes banks, trust companies, finance companies, credit unions, and other credit institutions. It has limited access to its only line of products. The people you might deal with here are under different profiles, like mortgage bankers, portfolio lenders, loan officers, etc.
Independence and Objectivity
He will work only for you. While he will have contacts with a number of lenders, he is not tied to any of them. The officers here will work for the bank. Their loyalties lie with the institution and not with you, so you may or may not get the best deal here.
Cost
He will not charge you anything (mostly). He is paid a commission by the lending institutions for which he works. You do not have to pay anything here either, since you are not going through an agent.
Services
He will keep you updated for annual reviews, debt consolidation, and renovation financing. It gets you your statement (annual) and notice for your mortgage.
Rates
Since he knows a number of lenders, probably even those you might not be aware of (perhaps due to less advertising), he might offer you some of the best rates in the market. He might be able to guarantee you an interest rate of 3 to 6 months. It will offer you a decent rate as well, but only for that specific bank. You may not be able to get access to a better deal from a better institution.
Flexibility and Time
He is flexible and helps you save time and money. You do not have to undertake the cumbersome task of visiting the lending institutions yourself. Also, he is aware of the entire market, he knows the best products available, and he knows where you can get the best deal. He can also be available for you anytime you wish. You will have to adhere to their rules and code of conduct, and your loan may take a long time to get approved. You have experienced help here as well; however, you are not a priority here, the bank is.

Things to Remember

There are certain issues, which need to be taken note of. These are summarized by keeping their pros and cons in mind.

Mortgage Broker
  • Although he has access to a number of lenders, if he has a personal relationship with certain institutions, there is no doubt that he might work against you. Sometimes, he may want to provide business to an institution that gives him the highest commission; thus, he may not work in your favor.
  • While he may not charge you, at times, some of them do charge a sizable amount as their fee. This kind of a situation arises if you have a bad credit history, poor credit score, or a low income. In fact, he might charge you so much that you might as well approach the lending institution directly. So, if he is charging you and you wish to continue with this, make it quite clear as to how much the fees will be.
  • Some of them might be inexperienced, not knowledgeable, and may not know of all the schemes available in the open market.
  • As much as they assure you that they know the best of lenders and will give you the best deal, this may not be true always, i.e., if you leave all the paperwork to them, they might talk only with a handful of institutions to speed up the process, and you might end up with the wrong deal. Hence, be sure to do some research yourself.
Bank
  • The bank, as mentioned in the table above, will allow you to have access only to its own products. So, you might not be able have a better deal somewhere else.
  • They have a corporate and impersonal approach, so unless you have been a long-term customer or an eligible customer with a good credit history, you may not get any discounts or preferential treatment.
  • The officer will work for the bank (exclusively), so you can be sure that your advantages are not taken into priority.
  • The process might take a long time; also, you have to keep visiting according to their timings.
  • Banks follow strict ethics and guidelines and are more regulated, and although this is a much disciplined approach, your loan approval process may be full of complications and hassles, not to mention, time-consuming.
Points to Discuss

Whichever option you choose, make sure to share the following points with them; in fact, put them down in writing so that there is no complication ahead.

Frequency of Payments

Discuss how often the payment must be done. It could be weekly, fortnightly, monthly, or quarterly. Select a time frame that is suitable for you, and let the lender know.

Prepayment

You must discuss with your agent or the financial institution, within how much time frame you will be able to make additional payments on your mortgage, and if so, how much of an amount you can pay.

Penalties

This is the most important issue to be tackled. Please make sure you know what the penalties would be, if you decide to opt out of your mortgage term.

The Verdict

Now this is an individual perspective. You need to ask around, do some extensive research, gather and analyze the pros and cons, and then decide which one to opt for. While some prefer the bank, either due to a long association or comfort zone, some others prefer going through a mortgage broker, especially if they can be sure to trust him, and if he is highly reputed and well-read. You need to make the right choice considering the factors mentioned above.
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Published: July 23, 2014
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