Okay so you’re lookin’ to buy a place but don’t know whether to go with a mortgage broker or with the big bankers, and you want to get the best rate and the best deal possible (of course, what fool wouldn’t?).
Let’s explain the difference first off (because I didn’t know what the difference was too!).
A mortgage broker is a professional who is a freelancing agent. They go between the lenders and the borrowers (that’s you) and are paid a commission from the lenders for securing a good borrower. They don’t work for anyone, they work for themselves, and have contacts to lots of lenders (think 100′s). Think of them as a recruiter- they seek out people interested in borrowing for a home and fix them up with a lender that will work for them. They can even go between you and the big banks for a mortgage. They do work by getting to know you, calculating what you could be approved of, sending your application, and discussing with you what would work for you in terms of fixed or variable mortgage. Many people say they liked their mortgage broker because they can often get a better rate than if they went to the big banks themselves. Some people also say that the mortgage broker helped them get approved even though their credit history wasn’t so hot.
A loan officer at the big bank is KIND of like a mortgage broker except they just work for one bank. A loan officer can sit down with you and talk to you just like a mortgage broker to see what your best fit is in terms of getting a mortgage. They can negotiate with you for you to get the best deal on a mortgage (e.g. the best fixed rate they have-it is often not the posted rate…if you get the posted rate, then you are a sucker, my friend). They get paid by the bank, either through commissions, or salary + commission, or just salary.
So who to choose?
Let’s do a pros and cons list so we can decide.
Mortgage Broker Pros:
- They can meet you on your time (I felt bad, I made one mortgage broker meet me on Valentine’s Day while her spouse was waiting for her outside)
- You often get a very competitive rate
- They can get you approved for more (which can be a bad thing too, though)
- If your credit score isn’t good, they can find a lender who will take you on
- You don’t have to negotiate, they will do the negotiating for you
- They can sometimes pay for things like inspections or appraisals out of their own pocket (they get less of a commission, but they may get more word of mouth advertising, and you may go back to them once your 5 year term is up)
Mortgage Broker Cons
- The lenders that offer the good rates are often on the other side of the country
- The lenders that offer good rates are often smaller, with names of institutions that you haven’t heard of
- Some may worry that mortgage brokers wouldn’t worry if you are approved for a mortgage you can’t handle, because they would get more commission
- You might not be able to sit down with the mortgage broker face to face (depending on which mortgage broker you go with)
- They can approve you for more, even if your credit score is bad (this can be a good thing too- depending on your perspective)
- There’s no supervisor to talk to to complain if they make a mistake
Big Bank Loan Officer Pros
- You can see them on your time too (they have mortgage specialists who can meet you in the evenings, or on weekends)
- They can give you perks within the bank like: free banking, free safety deposit box etc.
- They often pay the appraisal fee
- Face to face person
- Big bank- you know they likely won’t close down
- Can have home equity line of credits
- There is someone to talk to easily (just walk into the bank or call the loan officer) if you want to do something with your HELOC, or if you want to talk about changing from fixed to variable or vice versa
- They may have lower closing costs because they’ll pay for some of the costs
Big Bank Loan Officer Cons
- The big con is that you have to be able to negotiate (unless you get a joy ride out of it like I do) or else you won’t get a good deal
- You have to do the shopping around (go to different banks etc.) which can be time consuming
- Their rates often aren’t as good as mortgage broker rates
- If your credit score isn’t up to snuff, they might not take you on
- You might need to get “supervisor approval” for requests or whatnot
So in the end, as always, it’s your decision (hey, it’s your life- live it the way you want it!). I went to one mortgage broker, and two banks (with two different branches of each bank). Negotiating with the big banks was a huge headache- I was getting frustrated that the particular loan officer wasn’t budging on her best interest rate. I also didn’t really like her too (she seemed… kind of fake), and was hesitant that I would have to deal with her in the future if need be. I ended up going with another loan officer of the same big bank (Royal Bank) who gave me a great interest rate with no negotiating, really. The big banks’ financial advisers (or whatever they were) even got in on the action because they probably get a commission too. The mortgage broker was really nice, but I didn’t end up wanting to go with a bank that I couldn’t even visualize (unless of course, I google mapped it lol).
Related: Porting a Mortage
I think that if you have an unblemished credit history, then shop around at the big banks to see what you can get. If your credit history isn’t the best, then going through a mortgage broker might be the best thing for you. If you’re not a fan of negotiating and/or hard pressed for time to do this, then perhaps a mortgage broker might be for you, too.
Good luck with your decision- and think long and hard about things, because it is the biggest financial decision you will make in your life!