Mortgage Broker Versus Mortgage Loan Officer - Which is Right for You?

Mortgage Broker Versus Mortgage Loan Officer - Which is Right for You?

In the process of searching for the best mortgage, you may come across both mortgage brokers and mortgage loan officers. What’s the difference and which one should you work with in securing the best loan at the best rate with the best service?

In the process of searching for the best mortgage, you may come across both mortgage brokers and mortgage loan officers. What’s the difference and which one should you work with in securing the best loan at the best rate with the best service?

Mortgage brokers are independent individuals who work for themselves. They interact with many different banks and lenders to help you find the best mortgage for the best rate. They have to be licensed. Because they are not associated with any one institution, mortgage brokers can contact banks across the country on your behalf, giving them a wide pool of potential lenders. Brokers often receive commission once a borrower’s loan is finalized. While they may be motivated to close your loan because of this commission, they can also be motivated to put a borrower into the wrong loan if the commission is higher. This happened quite a bit before the financial crisis.

Mortgage loan officers generally work for either the lending department of a bank (like Wells Fargo or Chase) or for a mortgage only lender (such as PrimeLending or Sente Mortgage). In both cases, the loan officer is a representative of that institution. Depending upon the type of institution they work for, the loan officer may or may not be licensed, although all mortgage lenders are required to take the same training. Loan officers work to help you find the best product from the institution they work for. Loan officers working for banks may or may not receive commission while those working for mortgage only lenders usually receive commission.

Which Is Better for You?

When trying to find the right loan, should you use a mortgage broker or a mortgage loan officer? Why not both?

Using sites like BestCashCow, you can identify lenders that offer competitive rates and terms for the type of loan you are looking for. Contact your bank or a mortgage only lender and see what they can do for you.

Find the best mortgage rates from banks near you.

At the same time, it doesn’t hurt to contact a mortgage broker to determine what their best offer is. Generally, if you have poor credit, a mortgage broker might be a better option because they can check a borrower’s numbers with multiple institutions.

If you need a loan to close fast, then a mortgage loan officer, particularly one at a mortgage only lender might be better. With a mortgage only lender, all processes are set up to quickly and effectively close loans. Also, you will work with an actual employee of the organization who knows the lender’s process and can more easily connect with the processers and underwriters who work on your individual loan.

Another consideration is the location of the broker or loan officer: someone who is local to your area will understand local conditions. Items such as unfamiliar heating systems, zoning codes, etc. can confuse big or out-of-town lenders, which can increase the time it takes to close.

The bottom line is that if you want to find the best mortgage product at the lowest rate, it makes sense to speak to a mortgage broker and a mortgage loan officer that specializes in mortgage loans.

;In the process of searching for the best mortgage, you may come across both mortgage brokers and mortgage loan officers. What’s the difference and which one should you work with in securing the best loan at the best rate with the best service?

Mortgage brokers are independent individuals who work for themselves. They interact with many different banks and lenders to help you find the best mortgage for the best rate. They have to be licensed. Because they are not associated with any one institution, mortgage brokers can contact banks across the country on your behalf, giving them a wide pool of potential lenders. Brokers often receive commission once a borrowers loan is finalized. While the may be motivated to close your loan because of this commission, they can also be motivated to put a borrower into the wrong loan if the commission is higher. This happened quite a bit before the financial crisis.

Mortgage loan officers generally work in the lending department of a bank. They are the representative of that institution. They do not need to be licensed and work to help you find the best product from the institution they work for. They often do not receive commission.

Which Is Better for You?

When trying to find the right loan, should you use a mortgage broker or a mortgage loan officer? Why not both? Using sites like BestCashCow, you can identify banks that offer competitive rates and terms for the type of loan you are looking for. Contact the bank and see what they can do for you.

Find the best mortgage rates

At the same time, it doesn’t hurt to contact a mortgage broker to determine what their best offer is.

Generally, if you have poor credit, a mortgage broker might be a better option because they can check a borrower’s numbers with multiple institutions.

If you need a loan to close fast, then a mortgage loan officer might be better, because they know the bank’s process and are an actual employee of the organization. In addition, because a mortgage broker is most likely local, they understand local conditions. Items such as unfamiliar heating systems, zoning codes, etc. can confuse out-of-town lenders.

The bottom line is that if you want to find the best mortgage product at the lowest rate, it make sense to speak to both a mortgage broker and a mortgage lender from a bank that specializes in mortgage loans.

Image: patrisyu at FreeDigitalPhotos.net
Common Mortgage Misconceptions That Could Cost You Money

Common Mortgage Misconceptions That Could Cost You Money

Homeowners have some common mortgage misconceptions that can cost them thousands of dollars. Learn what they are and the real facts.

The real estate site Zillow recently did a survey of 1,000 homeowners and prospective homeowners that determined many are confused by the mortgage process. Here are the biggest areas of confusion and the real facts. Knowing them could save you a bundle when you buy a home or refinance.

31% of buyers don't think it's possible to get a home for less than 5% down.

There are several ways a homeowner can purchase a home with less than 5% down. FHA Loans, VA Loans, USDA Loans all allow homeowners to buy a home with 0- 3.5% down. These programs cover millions of individuals. Comprehensive information can be found at the article Buying A House with Less Than a 20% Downpayment.

34% of homebuyers don't know what the term APR means.

APR, which stands for annual percentage rate is the interest rate as well as all the other costs that go into a mortgage, including any points, closing costs, origination and underwriting fees, and any other costs. These costs are bundled into the APR metric. So, while the interest rate of one mortgage might be lower than the other, if the APR is higher, you'll most likely be paying more over the life of the mortgage, including larger upfront fees.

24% of buyers believe they can get the best mortgage rate from where they currently have their savings or checking accounts.

While your current bank is a place to start, other banks or lenders may significantly undercut these rates. Be sure to shop around. Check the mortgage rate tables on BestCashCow or other sites to get a feel for a good rate. Talk to other lenders.

26% of buyers believe that once they are pre-approved, they are obligated to get a mortgage with that lender.

This is not true. A pre-approval from a lender does not require you to use them for the actual mortgage. Usually, the homeowner wants to see that you can get a mortgage and the pre-approval serves that purpose. Once your offer has been accepted, shop around and find the best rate. Not doing so could cost you thousands.

Find the best mortgage rates.

Image: Stuart Miles at FreeDigitalPhotos.net
It Is Not One Size Fits All - The Pros and Cons of Paying Off Your Mortgage Early

It Is Not One Size Fits All - The Pros and Cons of Paying Off Your Mortgage Early

The decision whether to pay down, or entirely pay off your mortgage earlier, is largely dependent on your personal economic situation and confort level with alternative ways to deploy your capital safely.

How to manage housing debt is often the single biggest financial decision a person has to make. For those with the luxury to pay off their debt, the question is whether doing so is a wide decision. Although widely discussed, the President and Congress have not yet eliminated the mortgage interest deduction. Is paying off your mortgage early a good idea? 

Pros

  • Paying of a mortgage early reduces the associated interest cost of a loan. On a 30 year fixed rate loan of $300,000 at 4%, the interest cost over the life of the loan is $177,000. That is over 50% of the original loan value. And because it’s a reduction on spending, the savings are equivalent to getting a guaranteed tax free return.
  • An early payoff will increase the value of home equity.  The amount of equity the homeowner possesses will increase which can then be used as a fallback source of capital in tough times.  Given that most retirees live on a fixed income budget, simultaneously lowering monthly expenses and having a source of readily accessible funds should the need arise is a powerful combination. 
  • Peace of mind. Another, less easily quantifiable benefit to paying off a mortgage ahead of time is the psychological lift that one gets from being without such a burdensome debt load.  Particularly in these difficult economic times, where having any debt has become an anathema, this alleviation of a major source of potential concern cannot be easily dismissed.  

Cons

  • You will be losing a tax refund benefit. Assuming that the mortgage interest deduction is not eliminated in future tax and spending negotiations by the Federal government, homeowners receive a significant tax benefit from holding a mortgage. The tax benefit varies depending on how far along you are in your mortgage. Because fixed rate loans are structured so that interest is paid in the early years of the loan, the tax benefit is greatest during this time period. In the later years of the loan, the interest deduction decreases significantly, because the interest has already been paid.

 

30 Year Mortgage Interest Savings

Year

Payment

Interest

Tax Savings @ marginal rate of 25%

1

$17,187

$11,904

$2,976

10

$17,187

$9,619

$2,405

25

$17,187

$7,947

$1,987

 

  • Opportunity Cost. The excess capital that would have been otherwise employed in paying off the mortgage can, instead, be used for any number of other things, such as paying off higher interest rate debt, like credit cards, or accumulating savings to hedge against future emergencies. Maintaining sufficient liquidity to deal with the unexpected developments of life is a wise and safe decision.  These funds can also be invested in securities, like equities, that traditionally have a much higher return than could be expected from the savings generated off the early retirement of a mortgage loan.  In today’s low interest rate environment, finding investments with lower risk profiles than equities that also provide attractive returns is difficult.
  • Loss of capital. This is similar to opportunity cost but subtly difference. The cash that you use to pay off a mortgage is now tied into your house. Pulling it out via a home equity loan or by refinancing is not always a sure thing. The cash is no longer readily available. 

In the end, the decision on whether or not to pay off a mortgage loan can be reduced to a formula.

If the Real cost of mortgage (Future Payments + Future Interest Cost –Deduction Benefits) > Interest on Other Investments + Peace of Mind.

Then you should pay off the mortgage.

If the Real Cost of a Mortgage is less than the interest you can earn on other investments plus peace of mind, then pay off the mortgage.