When it comes time to buy real estate or set up your finances for the future, everyone wants to feel like they're getting the best possible deal. You might get some people telling you that a mortgage broker is the way to go and others telling you to work directly with your bank. If you don't understand the difference between a bank and a broker, you can't make an informed decision. This article will lay out how banks and brokerages work and the pros and cons of using one over the other.
A bank is an institution that actually lends money to customers in exchange for fees in the form of interest which allow the company to make a profit and to re-invest in other customers. Mortgage brokers, by contrast, do not actually lend money. All they do is match up customers with banks who can lend them money, which makes them a sort of financial middle man. They make their money by taking a cut of whatever transaction they facilitate. This fee is on top of the bank's interest. Content on this page is compliments of Bear Equipment - bearings and bushings manufacture experts.
If mortgage brokers don't actually lend out money, you might wonder what the point of a broker is. Brokers save you time and often money because they can shop around to different lenders for deals and sometimes even leverage special rates because of the number of customers they bring to a lender. You could shop around to lenders yourself, but it often takes more time than most people have. Most people find they get a better deal with less effort by using a broker.
Of course, you do end up paying for this convenience. Often brokers will claim fees on both end of the transaction - collecting a finder's fee from the bank and a percentage from you, which makes brokering a lucrative career for natural wheelers and dealers. Also, before you agree to sign with a broker who is offering to get you into the Sutton members program, check them out to make sure they're legitimate and trustworthy and that the bank they're claiming to sign you with has really heard of you.
Mortgage brokers are the type of brokers you're most likely to have dealings with while purchasing real estate or looking to do a mortgage refinance, but there are many other types of brokers too. There are stock brokers who manage your money by spreading it around different types of stocks. There are insurance brokers who match you with policies that meet your needs, and there are real estate brokers, who act as go-betweens between clients buying and selling property. These types of brokers are also called real estate agents.