When shopping for a new mortgage or a refinance, you may be interested in using a mortgage broker to help with the process. While mortgage brokers are popular in the industry, there are a few potential drawbacks associated with using them. Here are some of the advantages and disadvantages of using mortgage brokerages from We Know mortgages.
One of the advantages of using a mortgage broker is that you will gain access to a wide array of loan products. Mortgage brokers have relationships with many different lenders and can hook you up with a broker that meets your needs.
Someone On Your Side
If you go straight to the lender, you will not have anyone on your side to represent you. With a mortgage broker, you get an agent to help represent you with the mortgage lender. The broker can explain things to you in layman’s terms so that you’ll understand everything better.
Help You Choose the Right Mortgage
Another benefit of working with a mortgage broker is that you will find it easier to choose the right mortgage. A broker will be able to look at your situation and figure out which type of loan is better for you. This helps you get the assistance that you need in picking a loan.
Explain the Fine Print
When you are presented with a mortgage loan opportunity, you may be confused about all of the terms and conditions of the mortgage. When you work with a mortgage broker, the broker will be able to explain everything to you in detail. If you don’t understand something in particular about your mortgage loan, you can get everything explained to you.
In some cases, you may be able to get a better deal by working with a mortgage broker. Many mortgage brokers work with wholesale lenders, which means that they can get rates that are not available in the regular market. If you can find a wholesale interest rate and the mortgage broker does not mark it up too much, you’ll be able to get a lower interest rate.
Yield Spread Premium
One of the reasons that you may not want to work with a mortgage broker is because they may earn a yield spread premium. This is a premium that the mortgage lender pays to the broker after the loan is closed. This essentially adds to the cost of the loan for you, because the lender typically adds this to the costs that you pay.
Conflict of Interest
Another potential problem that comes with working with a mortgage broker is that they may have a conflict of interest to deal with. The mortgage broker may try to steer you to a particular type of loan so that he can get a bigger yield spread premium or bonus. The broker may do this even if it doesn’t actually help you save money on your loan.
Lack of Options
If you choose the wrong mortgage broker, you may not have a lot of options to pick from. Mortgage brokers will only show you the loans that they have access to. If they have only a limited number of loan providers to work with, you may not be getting to see all of the loans that are out there in the market.
When you work with a broker, you may end up paying other fees that you did not plan on. Some brokers want money upfront before they will help you find a loan. Others charge you a fee when they find you a loan to apply for. They may also charge you for helping you get approved.
Another one of the drawbacks of working with a mortgage broker is that you have to listen to their sales pitch. Brokers are essentially a type of commissioned sales person, so they often try to sell you on their services. This may not be desirable to you, depending on your situation.