The difference between mortgage lenders and mortgage brokers is mainly that a mortgage lender, generally speaking, is a bank or financial institution that gives you a mortgage. Many people forget, however, that different banks offer different mortgage deals on similar properties, and this is where a mortgage broker comes in.
A mortgage broker essentially acts as a “middleman” between you and your mortgage lender (bank). The mortgage broker shops around, trying to get the best deals on mortgages from several different lenders. The great thing about mortgage brokers is that they’re largely unbiased, meaning that they don’t really care where your mortgage comes from, so long as they get you a good deal. This is good news for you, as mortgage brokers encourage competition between rival mortgage lenders, which often drives their interest rates down in an attempt to seal a deal with you.
Ironically, mortgage brokers can often secure a better deal than many individuals would be able to secure if they walked into the same bank and asked for the same deal. This is because banks realize that mortgage brokers are directly pitting them against their rivals, and that mortgage brokers are going to be more in-the-know about mortgage deals than the average consumer. It is also because the lender often wants repeated business from the mortgage broker, and they know that the broker is likely to continue “shopping around” with them in the future if they offer decent rates. This desire for a competitive edge and repeated business often means that mortgage brokers will secure you a better deal than you could’ve secured on your own.
Mortgages come with different features that suit many different people and lifestyles/ circumstances. A retiree requires a very different mortgage from a real estate investor, for example. A mortgage broker will shop around to find a mortgage with the features that you require in your specific situation. For example, if you wish to take out a standard 30-year mortgage but can only afford a 5% down payment on your house, a mortgage broker should approach numerous lenders with these terms and come back to you with options of lenders who will meet them or come close to meeting them. Mortgage brokers are knowledgeable about any tricks or sales tactics a lender might pull in order to sell a mortgage, and are unlikely to be fooled by any deceptive sales tactics or “product of the month” sort of deals.
Mortgage brokers are paid a fee, and this is often 1%-2% of the loan’s value. This can be paid either by yourself, or by the lender. If you (the borrower) are paying the fee, then this can dollar amount can be added to your loan, or it can be paid immediately upfront. Reputable mortgage brokers can be a brilliant way to survey your options and potentially bring your overall costs (in interest) down during the lifetime of your mortgage.