There are two questions that always haunt home buyers: What should I go for; a mortgage broker or a bank? Let us take a look at the differences between both, their functionalities and limitations.
An individual if asked this question would always have a one-liner ready: “whoever gives me a good deal is the best”. But at the back-end there are several matters involved, other than just getting a ‘good deal’. In some cases individuals hunting for a ‘good deal’ usually end up being overcharged.
The main difference between both is that a mortgage banker, also termed as a mortgage loan officer, lends the bank’s own money to the borrowers. The loan officer takes the application and works out a home loan that suits the requirements and obligations of the borrower. The application is then forwarded to the loan officer’s employer – the bank – which after considering credit standings and repayment capabilities underwrites the loan at their rate and terms.
However, a mortgage broker doesn’t own the responsibility of the capital involved. They just act as an intermediary between lenders and borrowers, and charge a fee against it. People looking for loans usually set brokers second on their priority, except for those who are already turned down by banks due to bad credit ratings or tricky mortgage scenarios.
Here is a comparison of mortgage brokers and banks with respect to their functionality and effectiveness:
| Pros of working with a bank | Cons of working with a bank |
| More trustworthy & accountable | Mortgage process is lengthy and sometimes bureaucratic |
| Offer better rates (some cases) | Banks do not disclose the yield-spread premium |
| Add mortgage to existing accounts and make direct payments from there | Conservative loan programs |
Pros and Cons of working with a Mortgage Broker
| Pros of working with a broker | Cons of working with a broker |
| They do the legwork for you, comparing the wholesale rates of a large number of banks and lenders | There is a possibility of making mistakes |
| Wholesale interest rates can be lower than retail (bank branch) interest rates | False Promises |
| Handle tricky mortgage scenarios | May overcharge via yield-spread premium |
| Easier to get in contact with, less bureaucratic | May not have enough access to some of the bank programs |
On basis of this comparison, which is more preferable for home loan financing in an environment where all other factors such as credit ratings and amount of loan are constant. Feel free to share your views on this. If you have a case of your own, you are most welcome to discuss it.
The financial crunch gulped down a large number of companies, leaving many out of work and unable to pay debts. Many well known banks incurred large debts and huge liabilities, so large that even the Government was unable to give them a helping hand. Chances of getting a loan with a good credit standing plummeted down to somewhere near impossible, leaving no room for those who had their figures less than 650 at the Credit Ratings Scale.
The government’s mortgage relief plan, announced by President Barrack Obama a year ago, has helped only about 12 percent of the borrowers. Since its initiation, around 1 million homeowners started the process, but only 116,000 completed the application process and had their loan payments reduced permanently. More than 61,000 applications were rejected, either because the homeowners failed to make payments or didn’t return the necessary paperwork.