What are the advantages and disadvantages of getting a mortgage loan with a bank as opposed to a good mortgage broker?
By: Hitesh Khan/
Or to put it another way – when is it smart to use a good mortgage broker rather than a bank? The first thing you want to consider is this, “what’s worth to you to have professional assist you with your mortgage financing?”
Banks typically do not hire highly trained and experienced loan officers to handle their mortgage loans. They don’t really need to – they usually only offer a limited product line – 15 year fixed, maybe a 20 year, a 25 year fixed and maybe a couple of adjustable-rate mortgages’s (ARM) such as a 3 year ARM, maybe a 5 year.
Obtaining a loan from a bank, just like any other option has its benefits and its downfalls. Banks have, over time realised that the more accounts you have with that bank the more likely they are to retain you. Bank market research shows that a consumer with 4 or more products with a bank is over 90% likely to keep their relationship with that bank over time.
That’s why there is a push on debit cards, credit cards, overdraft accounts, and personal loans. The more they can load you up with, the more loyal you tend to be. Because of this, you can sometimes leverage these specials to obtain a very good deal. That is one upside to a bank.
An example of a downside would be limit on products available. Banks are typically more conservative with loans, both in program and in execution of those programs. Additionally each bank has only their product line available. Most banks will also typically not pay their loan officers what someone with experience commands in the marketplace. So the old saying comes into play – you get what you pay for.
A good mortgage broker has a good chance to get you a lower rate than what you will get at a bank. The reason? Because good mortgage brokers represent mortgage programs from many lenders.
Mortgage brokers typically represent most of the major lenders in the country. A mortgage brokered by the professionals typically commands rates at 1/4% to 1/2% lower than what the banks will offer directly to you.
The thing about mortgage loans are that the interest rates change quite so often. Mortgage brokers are informed of who has the best mortgage rate each day and that is the lender they put their loans through. So chances are, by using a good mortgage broker, you stand a good chance of getting a better rate but you may pay more in closing costs.
So how do you decide if you need a mortgage broker or not? First, you need determine if the mortgage broker is a good one or not. This is important because the chances of getting ripped of by an unscrupulous mortgage broker are much greater than getting ripped off by a bank. So get a recommendation or interview a few before choosing one.
A good mortgage broker always knows which bank is offering the most attractive rate in town and connect their customers to such lenders.
A good mortgage broker can leverage these relationships often times to obtain more favorable terms for a loan. This is because they have many more options to place a loan versus a single product line.
The downside to a broker is that, whether they are funding and selling the loan like a banker, or simply brokering the transaction to another funding source, they will not service your loan. They are mortgage originators, meaning it is their job to originate loans. The loans will be serviced through a bank that will collect payments, provide customer service after the closing etc. To some people this may be worth an extra premium to work with your local bank.
The moral of the story is, there are goods and bads to both and anyone that tells you otherwise is giving you a sales pitch. Ultimately it is important to use the resources at your disposal as a consumer to ensure you are getting a fair deal.
The important thing to note is that there is no one size fits all solution to your mortgage needs. Due to the fact that there are many loan programs available, many loan types, and the fact that programs, rates, pricing, and delivery options change regularly, each situation will vary. But the chances are, with a good mortgage broker, you will get a better deal than with going directly to the bank.
How to Secure a Home Loan Quickly
When using mortgage broker services, know that they can set you up on a path that can get you the best home loan meant only for you, in a quick and seamless manner.
Our consultants at iCompareLoan have close links with the best lenders in town and can help you compare Singapore home loans and settle for a package that best suits your home or commercial purchase needs. Find out money saving tips here.
Whether you are looking for a new home loan or to refinance your existing one, the Mortgage broker can help you get everything right from calculating mortgage repayment, comparing interest rates all through to securing the best home loans in Singapore. And the good thing is that all our services are free of charge. So it’s all worth it to secure a loan through us.
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