Mortgage Brokers vs. Banks

To put it very simply, there are two sources of most mortgage loans in the United States: banks and mortgage brokers. But comparing them on the basis of mortgage brokers vs. banks might not be fair; the two actually work on the same team.

Mortgage Brokers vs. Banks
The classic conundrum of where to borrow money often leaves many people rooting for their favorite team. Some people have better experience with banks, which have a deeply rooted history in mortgage financing. Others prefer independent mortgage brokers, which work exclusively as mortgage originators for financing companies, and are far “newer” in the lending environment.

But which should you choose to finance your home? It might not even matter.

Let’s talk a little more about mortgage brokers. Mortgage brokers are independent from banks, but actually work with one or many different banks to bring inexpensive financing to consumers. A mortgage broker is often an independent representative, who is hired by a single firm, or many firms, to sell mortgages to homebuyers.

One of the benefits with mortgage brokers is that they’re usually far less rigid in the lending process. Whereas a single banker at a large bank may not be able to bend terms for a customer, mortgage brokers have built a business around customized loans. Additionally, since mortgage brokers are only in the mortgage business, their focus is great for an in-and-out, one-stop shop for mortgage financing. They’re also far quicker to turn loans around, as their business is, at the end of the day, based solely on how many mortgages they can issue to borrowers.

Banks, on the other hand, are a far more traditional source of capital. Today bankers work only with their own internal lending offices to lend out the bank’s capital to consumers. Most banks have higher rates than a mortgage broker, since they also have overhead costs like big office buildings and thicker letterhead, but do not offer much difference than mortgage brokers in the long run. In fact, most banks won’t admit it, but they also work with mortgage brokers on wholesale loans at inexpensive rates.

Best rates are with brokers
Almost always you’ll find that independent mortgage brokers offer the best rates on their loans. This is because unlike a bank employee, mortgage brokers have their own capacity to set their own interest rates. Mortgage brokers can charge more or less, and they can even write loans that would lose them money–even though no broker would actually do it.

If your goal is to get the lowest rate possible, consider working with not one, but two mortgage brokers. Because mortgage brokers are independent of any decision-making at larger banks, they can negotiate with borrowers as necessary, making them a better choice to bankers. If you can successfully get two brokers to compete against each other on the interest rate of your loan, you’ll be in even better shape to get the best possible rate.

Keep in mind that one lost benefit with mortgage brokers is that they don’t work with a bank and thus can’t help you with your savings or checking accounts, nor can they really do all that much to help you with other services related to your financial life. So, if building a relationship with a complete banking operation is your goal, do note that a mortgage broker won’t entirely fit your goals as they don’t provide basic banking services.

But, if at the end of the day you want a no-frills, low-interest mortgage for your property, as any borrower should, a mortgage broker will be better equipped to provide you with a customized, low-rate loan, without the bureaucracy of a major banking institution.