What is a mortgage broker and how do they work?

Happy estate agent showing new home keys to a young couple after a discussion on house plans.

Everyone has heard the term ‘mortgage broker’ at some point in our lives and honestly, most of us don’t completely understand who a mortgage broker is and what they do. Put in simple terms, a mortgage broker is an intermediary between the borrower and the bank. They essentially work with the borrower and the bank to enable the borrower to be eligible for a mortgage – purchase or refinance. A mortgage broker acts as an intermediary who brokers mortgage loans on behalf of individuals or businesses.

How does this work?

The entire process is initiated when the borrower contacts the broker. The broker then collects information regarding the borrowers income, assets, employment and credit card history. This is done to understand the position of the borrower and his ability to obtain financing. Once this is done, the broker helps the borrower decide what loans are best, appropriate loan amount and the loan-to-value. The borrower can decide on his own, the broker is present only to help the borrower understand and make an informed decision. Hiring a broker means the borrower will not have to deal with the bank directly. There are two ways in which mortgage brokers make money – charging a fee or offering no cost loans where they utilize lender credit (this essentially means the interest rate the borrower has to pay is higher).

Mortgage brokers can help a borrower find the best rates

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If a borrower decides to apply for a mortgage alone through a retail bank, then the offers the borrower receives will be from a single bank. On the other hand, brokers have the ability to deal with several banks and lenders in order to find the best possible deal. Since brokers have to be approved by banks individually, every broker will have a different number of contacts and hence it is important for a borrower to pick the right broker and ask for multiple quotes from different lenders.

Mortgage brokers provide guidance when it comes to loans

A mortgage broker is present to help the borrower through the entire process until the deal is closed and the loan approved by a bank. They tend to be more available than the loan officers at banks since they work with fewer people and on a more personal level. Additionally, if a loan is rejected by the loan officer if you have a mortgage broker they will simply help the borrower apply at a different bank.

 

 

All Copyright credits to Nick Davis, articlebase.com

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