Both the mortgage broker and bank do help the individuals and institutions to borrow funds in form of debt. Though the working pattern and rules & regulations have quite major differences. Further, we are going to learn the different aspects of a mortgage broker and bank. In case you are planning to move to Canada then make sure you know about mortgage brokerage in Canada too.
The major difference between the mortgage broker and bank
at times in need of a loan, it could be a tricky situation where choosing between these two becomes difficult. Both the options come with their own merits and demerits. In layman’s language engaging with the bank is like working with a travel agent while engaging with a mortgage broker is like taking the whole responsibility of the trip on its own.
A mortgage broker acts as a bridge for their clients by providing them with the best lender in form of immediate help. While the banks are legalized financial institutions where primarily the loan taker is verified on grounds of accountability.
They do acts as a financial intermediary who matches home borrowers with the potential lenders so that they can find the best mortgage terms for the borrower. The biggest advantage of a mortgage broker is that they don’t involve a heavy application process, unlike the bank system.
Thus, they save a lot of time and effort for the borrower. Here, you need to understand that a mortgage broker doesn’t work only as an intermediary between the lender and borrower. He doesn’t provide or use their funds for lending such loans.
The mortgage broker does study the financial status of the borrower and most importantly the interest rate needs. Hence, thy find the best match for the borrower. Along with this, the mortgage broker asks for the paperwork for underwriting and approval purposes.
Eventually, mortgage broker income comes in form of commission they earn either from the borrower, the lender or even from both in some cases. This commission varies depending upon the size of the loan.
Work process of mortgage broker
For example, if the borrower is looking for a house or for refinancing then they shall approach a mortgage broker for the same purpose. Here, the broker shall provide them with a list of suitable lenders for them. All these lenders do qualify for a lending loan at the borrower’s interest rate.
Moreover, the broker also gathers vital information like income, assets and employment documentation, credit report, and the borrower’s ability to repay the loan. They also mention the loan-to-value (LTV) ratio, the borrower’s ideal loan type.
Both the parties get in contact with each and after a thorough study of facts and figures, the decision is being made. Once the deal is finalized all the mortgage funds are being loaded in the name of the mortgage lender.
The mortgage broker does receive his/her income in form of the commission also known as the organization fee from the lender or both in some cases.
When a person plans to take a mortgage from a bank then you are bound to get several discounts on the interest rates or say closing rates. If the account balances are small then too the bank could waive some of the costs as there is the absence of any kind of commission on the loan. If the person taking the mortgage doesn’t have an existing account in a bank, then they would pressurize you to open an account in their bank.
Here, the borrowers have applied individually to receive multiple quotes. Though multiple applications do increases the chances of commenting mistakes. In a bank, the interest rates may get reduced based on the applicant’s relationship with the bank. Also, there is no involvement of the third-party broker which directly lowers the fees for applying for a mortgage.
The main feature of banks is that they have limited options of mortgage products available to them. So, if the applicant doesn’t have many options to seek. Most importantly the interest rates are dependable on the relationship pricing.
Comparing the bank and mortgage brokers
Both the options do come with their pros and cons. If talk about time duration in the whole process then the mortgage brokers have an advantage over the banks. But interestingly the interest rates of the mortgage broker are quite high in comparison to the banks. The banks may reduce the interest rates in some cases.
But the mortgage products available to the banks are very limited in number while a broker works with numerous lenders. So, to summarize both the options comes with their advantages and disadvantages.
It’s the final call of the applicant to choose the best option for themselves. However, make sure to study both options in a detailed manner.