Are mortgage brokers evil? The answer is simple no. Are there shady mortgage brokers that will try to con you out of your hard-earned money? Off course! Every profession has bad apples! Are these bad apples the majority? No, let’s discuss why.
Mortgage brokers want your business
Most mortgage brokers work on commission and rely heavily on word of mouth advertising to generate clients. Furthermore, 50% of a good mortgage brokers business is repeat customers; mortgage brokers have an incentive to service their customers properly and keep them in the long haul.
The competition keeps them honest
Given the influx of many new mortgage brokers in the last couple of years, the mortgage business is a very competitive field. There are a large number of brokers competing for a small base of customers. Brokers will almost always give you their best rate in order not to lose your business. Remember, brokers don’t get paid until they fund the loan. This is also a good reason to speak to at least four different brokers from different companies, let them compete for your loan and you will almost always shine at the end.
The law is there to protect you
God bless America! We have many laws in this country that govern mortgage brokers and let me tell you that the lending laws are not very forgiving in this country. Mortgage brokers will take a lot of heat when they do shady deals and all it takes is one simple complaint. Make sure you get everything in writing from your broker and you will be protected, simply as that.
The Bad about Mortgage Brokers
Mortgage brokers do not fund your loan themselves; they use wholesale lender and banks to find you the right loan and save you money. The problem arises in how they are compensated. Wholesale lenders do not set interest rates, nor do the brokers. The going interest is dictated by the secondary mortgage securities market. How rates are dictated is a discussion by itself, which is unimportant in our discussion.
Lets simple assume the going “par rate” for a 30 year fixed mortgage is 6%.
Be Careful Of the Fees
By law, a mortgage broker is permitted to charge you a fee for finding you the right loan. When negotiating, don’t neglect these fees. Find out what they are and make sure you talk to them about it. Fees are negotiable; don’t let anyone tell you otherwise. The thing to ask yourself for when looking at fees is, what am I paying this fee for, is it for an appraisal, notary service, processing etc? Is the fee there because something must be done to fund the loan and is necessary or is the broker just trying to make some money off of me?
Pounding Your Mortgage Broker
To successfully get the best rate on your loan with a broker, keep in mind that the broker needs to make a living. If you grind them too much, chances are they will not take you seriously and simply not want to do the loan. Be reasonable, let the broker make money off of your loan and they will work hard to get you the lowest rate. The broker can go back to the wholesale lender and grind them for a lower rate, but if there is no money in it for the broker, there is no incentive.
What I suggest is to speak to a couple of different brokers and let them compete. This has been a very daunting task up until recently; luckily there are many good mortgage broker websites online that will analyze your needs and match you up with four of the best lenders according to your situation. What would take days to do flipping through the yellow pages now takes 60 seconds online.