Mortgage Broker vs Your Local Bank

UPDATED: SEPTEMBER 6, 2011

Whether you are looking to move up, scale down or buy a home for the first time, choosing who or where you obtain a mortgage from could save you thousands of dollars.

Mortgage broker vs local bank

Mortgage broker vs local bank

The major difference between a mortgage broker and the mortgage specialist at your local bank is that a mortgage broker has several companies competing for your business.

Mortgage broker vs the local bank

Although the right mortgage specialist at a bank may have enough authority to offer you lower mortgage rates, a mortgage broker will be shopping your information around to different lending institutions trying to find the best rate for you.

In most scenarios, a mortgage broker has more flexibility in obtaining low rates, as well as offering a larger variety of lenders if your application has complications like poor credit, no credit, or you’re self-employed.

How much can you save with the right mortgage?

Let’s take a look at the following example:

A $300,000 mortgage amortized over 25 years at 5.25% compared to the same mortgage at 5.5% .

At 5.5%, your monthly payments would be $1831.18 with a total obligation of $77,432.92 over the 5-year term.

At 5.25%, your monthly payments would be $1787.86 with a total obligation of $73,819.32 over the 5-year term.

For a difference of $43.32 a month and $3613.60 over five years.

As you can see, even a difference as little as .25% in rates can save you thousands over a 5-year term.

Often this is what makes the difference between a mortgage broker and your current bank. Also, keep in mind that, regardless of who offers you a mortgage, your payments can be deducted electronically from any bank account by any institution providing the same convenience that your bank might make you believe that only they can offer you.

Credit checks by banks hurt your credit

Another important note is that your local bank will conduct a “hard hit” viewing your credit report and it will show up on your credit history as a application for a mortgage.

A mortgage broker will create an anonymous profile based on your financial information and a “soft hit,” checking your credit score only to attach to your file, which will be then sent to potential lenders using only a number system for the lending institution to decide if they would offer you a mortgage and at what rate.

For example, if you are shopping for the best rate and you go to three banks and they all do a credit check, by the time you get to the fourth bank for a quote, you could have a flag on your credit and have difficulties getting a mortgage!

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3 comments

  1. Baudart Lynn says:

    @Bob unfortunately not all the banks do this… actually if you are just rate shopping, I would suggest that you tell them not do your credit check that you are only inquiring!! It’s the easy way and you don’t have to go later to Equifax or Transunion and ask them to group them, which I had no idea they did this? I am surprised!! the best way is the honest way; just tell them you are shopping, which is very normal, and all will be fine.

  2. Jeff Young says:

    In Regard to Bob McPherson’s comment: This is true, Try to group all your mortgage credit inquiries all within a few days of each other. They will group as one inquiry. If not, Dispute it.

  3. Bob McPherson says:

    “For example, if you are shopping for the best rate and you go to 3 banks and they all do a credit check, by the time you get to the 4th bank for a quote, you could have a flag on your credit and have difficulties getting a mortgage!”

    This is not true. If they are performed within a short period of time, they are grouped as 1 inquiry for the purpose of one’s credit report / FICO score. Look it up.

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