Why Mortgage Brokers May Not Help You Find the Perfect Mortgage
Mortgage brokers are responsible for assisting people in buying mortgages. Their services differ depending on their geographical location. One can approach brokers from the Internet, phone, newspaper, or referrals. Connecticut Mortgage Broker usually works on commission and receives a portion of the mortgage amount for their services.
DescriptionA mortgage broker plays an important role in the application process of mortgage loans. They collect application fees from the borrower and then process and file the required documents with the lender. These documents include the income and credit details of the borrower. After checking these details, the loan officer informs the applicant about their mortgage interest rate and loan terms. The mortgage broker helps borrowers make better decisions regarding their loans. This involves ensuring that the application process goes smoothly and quickly without any delays.
Role Potential lenders or financial institution’s contract with mortgage brokers to find the best possible mortgage terms for their borrowers. As part of their job, the broker analyses the borrower’s current financial situation to assess whether they would be able to repay the loan. The broker may also seek additional information from potential lenders to determine the borrower’s eligibility for a loan. In addition, mortgage brokers research on the prevailing market interest rates and apply appropriate modifications to the interest rate and loan terms. The mortgage broker makes connections with suitable potential lenders, which allows the borrower to apply for a loan. Once the application process is complete, the borrower and the lender will establish an agreement for the repayment of the loan.
Service fee The service fee paid by the broker to the bank is one way for the bank to ensure the borrower will repay the mortgage loan. Normally, the broker will charge the bank with a service fee equal to 10% of the amount of money extended to the borrower. However, the exact fee structure varies from lender to lender. Sometimes, lenders offer their mortgage brokers a discount based on the number of applications the broker obtains. Similarly, some lenders charge a commission when the borrower refinances the mortgage loan. Mortgage brokers receive a portion of the interest earned by the bank on the mortgage loan, referred to as the ‘service bonus’.
Broker’s compensation A mortgage broker’s compensation usually comes from the fees the bank pays to the mortgage broker. However, some banks provide payment in the form of a referral fee. This arrangement is usually made between the lender and the mortgage broker. In most cases, a broker has to agree to this arrangement before starting work.
Commission markup Many mortgage brokers receive a commission directly from the bank, sometimes even earning hundreds of dollars. This commission is known as the markup of the mortgage rate. The rate that the broker quotes to the borrower is already decided by the bank, which gives the broker a specific commission on the quote. This markup of the mortgage rate occurs after the broker receives his fee from the bank.
Broker markup If you choose a mortgage refinance deal with a broker who receives a commission based solely on the origination of the loan, then the origination cost will be entirely shifted to the borrower. This means that the appropriate loan amount will have been quoted without considering the markup. This could mean an inappropriate loan amount being provided to the borrower resulting in poor financial decision making and more debt. The end result is that the borrower ends up paying more for the loan.
Broker exclusivity The exclusivity agreement between lender and broker is another damaging feature of mortgage brokers. This agreement states that the lender is not allowed to advertise or discuss the loan with any other company. In case there are discussions regarding the origination of the mortgage, the lender is not allowed to present the borrower any other options to reduce the mortgage rate. The exclusivity agreement also states that the lender is not allowed to give advice to any other third parties and is not allowed to create any proposals to the borrower. This means that a lender can sell the home even if it does not meet the borrower’s needs.