Why Use A Mortgage Broker???

Mortgage brokers represent you––the borrower––in obtaining financing from a variety of lending sources. If mortgage brokers are middlemen between you and the lender, how can they save you money? Don't you have to pay extra for using a mortgage broker?

Independent surveys have shown that mortgage brokers do NOT cost you more than direct lenders. In many cases they even save you money. Most home loans (about 60% in the U.S.) are done through mortgage brokers. Mortgage brokers increase competiton in the market place, resulting in lower rates for everyone. Since mortgage brokers obtain their funds from a variety of sources, they allow you to access to a large number of lenders. When you apply for a loan with a mortgage broker, you are effectively applying for loans with all the lenders that mortgage broker is approved through.

Even the major websites lendingtree.com, lowermybills.com, and several others give your information to mortgage brokers for them to contact and do business with you. The downside to "shopping" this way is that many different brokers pulling you credit scores could reduce your score and what you qualify for. Unlike what you would experience going through those websites, however, our company would only pull your credit once (to see what you qualify for) and, thus, have a less negative impact on your credit score.

Mortgage brokers obtain rates at wholesale, mark up these rates by adding points and then quote you a retail rate. Mortgage brokers are NOT employees of the lender, rather they are independent contractors. Mortgage brokers are free to set their own pricing. Therefore two different mortgage brokers using the same lender can quote you different rates/points! This is because the two brokers may mark up wholesale rates differently.

Lastly, for those who wish to have more conveinence, you are not required to meet at a bank multiple times to get financing when you go through a mortgage broker. We can send you all of the required documents detailing the loan options of your choice which are available to you. You can even have your own attorney look them over for you and close the loan. The process is a lot more simpler and less time-consuming.

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Why do lenders use mortgage brokers?

1. Saves them time and money. The mortgage broker does all the legwork of finding customers, pre-qualifying them and putting together their loan package. As a result, lenders are able to offer discounted pricing to mortgage brokers.
2. Alternative to branch offices. Since personal contact with the customer is usually required, a mortgage broker serves as a lender's branch office. This saves the lender tremendous amounts of time and money. Through a network of mortgage brokers, lenders can service a wide number of customers.
3. Provide a matching service. Mortgage brokers know what each lender is looking for and submit loans that a particular lender is likely to approve. This saves the lender a lot of time and expense since they approve a higher percentage of loans.
4. Mortgage brokers generate about 50% of all loans. Lenders have established wholesale divisions and have account representativeson staff just to service their mortgage brokers. There is a lot of competition amongst wholesale lenders to get broker-generated business.
5. Save sales and marketing expense. Mortgage brokers are responsible for all the sales and marketing required to find clients. Lenders in effect have a large sales force with little overhead cost.

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How do mortgage brokers set pricing?

Remember, mortgage brokers obtain rates at wholesale, mark up these rates by adding points and then quote you a retail rate. It's that simple! This is similar to what a travel agent does. Travel agents obtain discount pricing as a result of their volume.

Example 1 : 1 point price
Wholesale rates	8%	1.0 point
Retail rates	8%	2.0 points
Mortgage Broker would earn		1.0 point

Example 2 : 0 point pricing
Wholesale rates	8%	-1.0 point (rebate pricing*)
Retail rates	8%	0 points
Mortgage Broker would earn		1.0 point

*Rebate pricing is where the lender pays the broker a fee, i.e. on a 1 point rebate or -1 point fee, the lender would pay the broker a fee of 1 point.

Example 3 : 0 point/reduced fee pricing
Wholesale rates	8%	-2.0 (rebate pricing*)
Retail rates	8%	-1.0 points
Mortgage Broker would earn		1.0 point
Consumer would get a rebate towards closing costs of		1.0 point

A mortgage broker's wholesale rate sheet might look like:

8.5%	-3
8.25%	-2
8%	-1
7.75%	0 Par Pricing
7.5%	1
7.25%	2

Here, mortgage brokers earn 3 points if they sell the loan at 8.5%, 2 points if they sell the loan to you at 8.25% and 1 point if they sell the loan at 8%. These points are paid by the lender and may be known as Premium Pricing, Service Release Premiums, or Rebate Pricing. These points are not charged to you the borrower, but you do pay the higher rate.

At 7.75% the broker does not get any points back from the lender––this is known as a par price. The broker has to charge you points to make money. At 7.5% the broker has to pay 1 point to the lender and will pass this on to you as well as charge you extra points to make a profit. In this case, the lender's points are known as a discount fee and the broker's points are known as an origination fee.

It is important to understand that brokers do get a wholesale rate and are providing a valuable service and deserve to get compensated. The fact that the lender is paying the broker a commission does not mean that you are paying a higher rate. In fact, many brokers can save you money by shopping for your loan.

The rate offered to you by mortgage brokers is a function of the rates offered to them by their wholesale lenders and their markup. When deciding on a mortgage broker it is important to choose one that shops rates with a large number of lenders, has a fair markup and good service.