Your Mortgage: Financial Institution vs. Mortgage Broker

by Kristina Tahnyak on February 8, 2011 · 0 comments

Shopping for a mortgage can be both time consuming and frustrating.  Some of us may choose to shop around for the best mortgage rates ourselves, while others may choose to take our mortgage from our primary financial institution out of loyalty.  There are several different factors such as closing fees, the home inspection, and commissions that must be considered before we choose where to take our mortgage.

The first step to getting a mortgage is the mortgage pre approval. I always suggest that clients get a mortgage pre approval before starting to visit homes.  A mortgage pre approval gives us an idea of the mortgage amount that we will be approved for with our financial institution.  Therefore, we will know the price range of homes that we should start to visit.

A mortgage pre approval does not bind us into a contract with the financial institution; it is simply an approximate amount of a potential mortgage approval.  It is not advised that we get more than 1 or 2 mortgage pre approvals from potential financial institutions.  Although no credit is actually offered, a mortgage pre approval does require a credit check.   Therefore it adds an inquiry hit onto our credit bureau.

The second step to getting a mortgage is to decide where we would like take our mortgage loan. As a renter I have shopped for a mortgage twice in the last few years.  As a total commitment freak, I backed out of both contracts within the allotted time frame and without penalty.

The first time I was shopping for a mortgage was in November 2007. I went straight to my financial institution for a mortgage pre approval.  I have all of my other financial dealings with my financial institution (which is also my employer) and therefore they were my only option for my mortgage.

My financial institution was willing to pay up to $1000 in notary fees, as well as pay for the inspection of the property which is valued at approximately $400.  The interest rate at that time was guaranteed for 90 days.  It was reasonable and it was a fixed rate guaranteed for 5 years.  I liked the idea of dealing with my financial institution because I was comfortable with my bank branch.

The second time I shopped for a mortgage was August 2009. This time I went to see a friend of mine who is an independent mortgage broker.  Maggie and I have been friends for several years, and more recently we have become colleagues.  When I am unable to approve clients for a mortgage with the financial institution where I work, I send them to see Maggie.

The benefit of dealing with an independent mortgage broker is that an independent mortgage broker deals with several different financial institutions. Therefore, they shop for the best interest rates on our behalf.  Independent mortgage brokers are paid a commission by the financial institution for bringing them business.  The downfall of dealing with an independent mortgage broker is that nothing in negotiable.  They offer pre-packaged deals by financial institutions or finance companies; therefore various extra costs such as notary fees and inspection fees are often not included.

Sometimes these extra costs will be paid by the independent mortgage broker.  These fees (if paid) are at the expense of the independent mortgage broker and they deduct it from their commission.  The commission paid by the financial institution to an independent mortgage broker can be anywhere from 0.0075 to 0.0125 of the total mortgage value.

(Photo By Sarah Ackerman)

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