Mortgages: Banks vs. Brokers - Are you Better off with a Bank or a Mortgage Broker?

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Thinking of purchasing or refinancing a home? Need a second mortgage? CEO/president Salvatore Petrozzino of Worldwide Capital Mortgage Corp. offers expert home financing information and important facts about securing the most cost effective loans available.

As an Expert in home financing CEO/president Salvatore Petrozzino of Worldwide Capital Mortgage Corp. states Almost 70% of U.S. mortgages are originated by mortgage brokers, not banks.

Most of the general public does not realize that a mortgage broker is not the middle man between the bank and the customer, and the broker must be licensed by the Banking Department of their state.

The difference between Mortgage brokers and banks are mortgage brokers search hundreds of funding sources to secure the best deal for you, while a bank is restricted to just a few loan products they can offer.

Bank employees are salaried, so there's no incentive to get you the best deal - or any deal at all. Since mortgage brokers only get paid when your loan closes, they work hard to help you through the entire loan process.

Banks can legally tell you that you're not paying any points because they can make up various names for the money they charge you, such as loan origination fees, commitment fees, rate-lock fees, etc. Mortgage brokers can only charge a broker fee and, depending on the rate, they might not even charge the broker fee since they'll get paid by the lender.

Mortgage brokers use lending institutions called banks, but they're usually not the same banks consumers can go to for a mortgage. Mortgage brokers who are approved by these banks get the loans at discounted wholesale rates. These savings are then passed on to you.

Mortgages from consumer banks cost more because they have greater liability and higher costs of doing business. You always get a better deal with a mortgage broker, particularly when you understand that the banks' so-called standard fees are just another way the banks make money.

Banks are backed by investors with various guidelines for lending, and the bank is bound by these guidelines, so if your loan isn't approved… you're out of luck. On the other hand, the mortgage broker may deal with hundreds of lenders, each having their own different guidelines, so if one of the lenders declines the loan, the broker simply takes it to other lenders.

The bank will tell you that since they make the loan, they can make the underwriting decisions. While this is true, they still must adhere to the investor guidelines. Also, banks frequently close under their own name, and then resell the loan to avoid liability. Doesn't this sound like brokering to you?

Mortgage brokers work with all the big-name lenders you're familiar with - Citibank, Wells Fargo, Washington Mutual - except brokers work on the wholesale side of the industry. When you compare a broker's rates from one of these banks to what the same bank would offer a consumer directly, the broker's rate will always be lower! Think about it, brokers would have to be cheaper. Otherwise, there wouldn't be a market for brokers to work in, and brokers wouldn't be responsible for two out of every three U.S. mortgages!

Whether you decide to work with a mortgage broker or a bank, the most important thing you can do for yourself is to choose someone you can trust. Make sure they have a good reputation. Beyond having a clean record with the Banking Department and the Better Business Bureau of your state, a good percentage of their business should come from referrals. Working with someone you trust can save you more than money - it can save your home! How? Well, several years ago, thousands of homeowners took out Adjustable Rate Mortgages (ARMs), enticed by the low introductory interest rate. Now that this introductory rate is adjusting, many homeowners are facing mortgage payments that they simply cannot afford. The result? Unfortunately, some of these homes will wind up in foreclosure. A good mortgage broker will try to learn about your personal circumstances, future plans and goals so they can advise you as to which mortgage is right for you - for your short- and long-term interests.

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Sal Petrozzino
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