- Posted by: steve
- Category: mortgage broker, mortgage rates
When shopping for mortgage rates, you want to get the best quote possible. But why are bank rates so much higher than credit unions and mortgage brokers?
For first time home buyers, getting a mortgage can seem like a hard process and even buyers who have purchased a home before but are refinancing for the first time may not be able to get the rate they want.
There are ways to prepare for this, but there are still many things that will feel out of your control when it comes to sitting down with someone and talking about your mortgage rate for the first time.
Below you’ll find a few examples of why bank mortgage rates are usually higher than those of mortgage brokers or credit unions, and why choosing a mortgage broker or credit union is a smart decision, both financially and in terms of overall experience.
1. Getting the Whole Package
Even if you have the perfect credit score or a great financial background, it can still be hard to get a mortgage rate you’re comfortable with. If you’ve made some financial mistakes or have other loans, it can feel almost impossible.
That’s why consumers, both first time home buyers and those looking to refinance, are turning away from banks and other direct lending sources more and more and are working with mortgage brokers and credit unions instead.
Mortgage brokers and credit unions are often able to offer lower rates than what’s available with a traditional bank mortgage, for a number of reasons.
They also stand out when it comes to customer service, making the process itself easier and more enjoyable.
2. Wholesale vs. Retail
When you go to your local bank branch for a mortgage rate, what you’re being offered is the retail price of that particular bank branch.
It may be tempting to believe that because you are a customer who banks regularly with the institution they’ll be inclined to give you a discount or a better rate, but that is not often the case.
Since the bank will be lending the money directly, it is going to do so in a way that will result in the largest profit for the bank overall.
What is a Retail Price?
Retail prices on mortgages result in higher rates because retail lenders, like banks, have employees that they have to pay to do what they do. Wholesale lenders, however, work directly with mortgage brokers and so those wholesale prices are able to be passed on directly.
How are Mortgage Brokers Different?
Mortgage brokers shop around to a number of different lenders but do not actually lend out any money themselves. Depending on how many different companies the broker goes to, there can be dozens of rate options to compare.
Mortgage brokers have access to the prices offered by the wholesale division of different institutions, including banks, that even mortgage consultants working for the retail division of that same bank won’t be able to offer a customer.
In addition to having access to more and better mortgage rates and being able to offer those rates to clients, mortgage brokers can also offer their customers confidence. By knowing that multiple rates were offered and considered, home buyers can more confidently trust that they got the best one.
3. Profit vs. Non-profit
One of the differences between banks and credit unions is that banks are for-profit organizations.
The person handling the mortgages at your local bank branch has someone–a boss, a board, investors–to answer to. Because of that, the mortgage rates they offer are higher because they need to have bigger profits so they can make shareholders happy.
Credit unions are different because they are non-profit organizations. They don’t have a board of trustees or shareholders, and so their job is to make their members happy.
While credit unions do have membership terms for joining that banks do not, there are many different kinds of membership.
For example, membership could be based on your employer, where you live, or your belonging to a group like a labor union, homeowner’s association or faith organization.
Becoming a member lets you take advantage of a credit union’s not-for-profit business model which can result in, among other things, lower rates on mortgages.
4. Clear Understanding
Local bank branches usually advertise themselves with the friendly faces at the teller’s window, but when it comes to mortgage practices, things for the customer are not always as cheerful.
Part of the reason is that some banks do not have to follow a set of rules or regulations. Without being forced to, bank associates will usually choose not to tell the home buyer about extra costs that are being passed on to them.
Mortgage brokers, however, do their work in a way that puts their customer’s interests first. Because mortgage brokers do have to follow a clear set of rules, anyone trying to get a mortgage rate will have a clear sense of what they are being charged for and why. They won’t be surprised at the end when everything is added up.
Mortgage brokers also don’t get paid until the customer’s loan is done, meaning that they are going to give the best customer service, like answering any questions a client may have, from start to finish.
5. Customer Service
Though mortgage brokers and credit unions are experts in what they do and work hard to get the best mortgage rates for their customers, their offices don’t have the trappings of a big institute like a bank.
Your relationship with a mortgage broker typically will start when you are first seeking your mortgage, or, in some cases, when you are looking to refinance your home.
Unlike your bank, where you may have been making deposits and taking advantage of other services for years, your mortgage broker won’t know anything about you.
This may seem like a bad thing, but it can actually be good for you.
You are Starting With a Clean Slate
Your mortgage broker wants to find you the best mortgage rate no matter what your financial past looks like.
You can bring any information to them about previous investments or current earnings or other debts and mortgage brokers will still want to earn your business by earning your trust.
They will never judge you for your qualifications. Instead, they will do everything they can to get the best mortgage rate possible for your situation.
They Don’t Take Your Business for Granted
Changing banks is not fun, and banks know that.
They know that they would have to do something really bad for a customer to go through the long process of moving their accounts. Banks use that to their advantage and often their customer service suffers.
Mortgage brokers expect that any customer coming to them for a mortgage is probably going to other mortgage brokers and thinking about other lending options as well.
They know that your business is not guaranteed, and so they work hard to get it and to keep it.
They Are There For You
Brokers dedicate themselves to their clients by making sure that they are available to answer any questions.
Unlike banks, where you may have to go through a complicated automated system before ever speaking to a real person, mortgage brokers operate out of smaller offices, making it easier to get in touch.
When you work with a mortgage broker, you’ll probably be working with the same person the entire time through every step of the process.
Mortgage brokers and credit unions are made up of small, hands-on teams who work closely with each new client and appreciate the value of their business.
6. More Options
While it’s best to pay off as much of your other debts and student loans as possible before trying to get a mortgage, getting rid of those debts completely is not possible for a lot of people.
This is one more way that mortgage brokers are able to do a lot more for a customer than a bank could.
Banks Have High Standards
Even regardless of the rate they are able to offer, the standards of qualifying for a loan with a bank may be out of reach for many potential home buyers. Those with a low credit score or poor credit history are often turned away from the beginning.
Mortgage Brokers Work For You
Mortgage brokers do not turn away customers based on their credit history. Instead, they look at your financial and personal information and use that when shopping for lenders that would work for you.
Rather than having to deal with the embarrassment or stress of being turned down for a loan by a bank, going with a mortgage broker means that someone else is doing the work of finding loan options that you will qualify for. There is no risk of being turned down because you will never be presented with an option that isn’t a real possibility.
7. Hard Work Well Spent
Preparing to secure a mortgage can feel like preparing for a long war.
First here are supplies you need to collect, which can include:
- Financial statements
- Loan payment history
- Pay stubs
- Tax information
This is all information you may be asked for.
There is research that you should do to determine what you can afford.
After all of that hard work and time you spent preparing, you want to make sure that you trust the person you’re working with to put in their own hard work too.
Because mortgage brokers only do one thing–securing mortgage rates for their customers–they give it their full attention. There are no distractions to stop them from doing the best possible job for you.
Once you’ve had your initial meeting with your mortgage broker and they’ve gotten to know you and you’ve had the chance to get your questions answered, all you have to do is wait.
You can take a backseat while your mortgage broker does the job of comparing lenders and comparing rates and representing your best interests, knowing that when you are eventually presented with your mortgage rate options, they will be the best that were available.
It’s always going to be necessary for you to do a little legwork before beginning the process of getting a mortgage, but by working with a mortgage broker you’ll see that the work you put in was well worth the return that they can provide.
8. Staying Current
Banks have been trusted institutions when it comes to mortgage rates for a long time, but the reality of home buying is very different now than it once was.
The rising cost of higher education means that more potential home buyers are still paying off student loans and other debts at the same time that they are trying to get their first mortgage.
Increasing connectivity means that there are more demands on our time, as we are never out of reach of our friends, our family and our offices. As a result, people value their free time more than ever and do not want to spend weekend afternoons sitting in a bank office or weeding through complicated paperwork.
At the same time, easily available information means that customers are empowered to do significant research on their own and will have a clear idea of what they want and what they expect before they ever interact with any type of mortgage professional.
What That Means For You
In addition to the financial benefits they can provide by shopping for, finding, and securing the best mortgage rates for their clients, these other factors make mortgage brokers a clear choice for many first time home buyers or those looking to refinance their mortgages.
Mortgage brokers are part of a leaner, more flexible industry than traditional lenders like banks. They understand who the modern home buyer is, what type of financial background they might have, and what they’re looking for in a home buying experience.
At the end of the day, mortgage brokers are able to be more competitive in the mortgage marketplace, which allows them to provide the best customer service, the easiest process, and ultimately, the best mortgage rate to their customers.
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