Posted on April 19th, 2021
In your endless search to find the lowest mortgage rates on the planet, you may be wondering which route will lead to the biggest savings.
Should you go to your local bank, try your luck with an online mortgage lender, visit a credit union, or consult with an independent mortgage broker/banker?
You’ve Got a Lot of Options When It Comes to a Mortgage
- There are many avenues you can take to obtain a home loan
- Including local brick-and-mortar banks and credit unions you may already know and work with
- Or direct mortgage lenders (both online and offline) you may have never heard of that promise low rates
- Lastly don’t forget to consider an independent mortgage broker as well
You may have heard that mortgage brokers offer the lowest interest rates thanks to their wholesale partners.
And as we all know (or should know), wholesale prices tend to be cheaper than retail prices, the latter of which rise as operating costs are passed along.
So does this mean brokers will automatically offer better rates than the competition?
To be blunt, there’s no easy answer here. Actually, there is, but it’s not without its legwork.
I’d argue to call/visit all of the above to see who offers the best interest rate and closing cost combination.
Yes, I know it’s a pain, but if you don’t do it, you’ll never really know what could have been. And consider the return on your investment for those few extra hours you put in.
Of course, you’ll need to be firm with each company you call, as they’ll be selling you as hard as humanly possible, and making promises to best everyone else, whether true or not.
Assuming you survive the endless sales pitches, you’ll need to determine if the company offering the “best deal” can be trusted to actually get the deal done. After all, a mortgage offer is of no value if it doesn’t actually close.
This requires doing some research on the company and/or individual involved, asking for references, and so forth.
Oh, and going over the rate and cost of the loan more than once to ensure everyone is on the same page.
That’s right, not every mortgage company is reputable, and if you pick one that can’t deliver, you’ll waste a lot of time and potentially miss your window to snag a low interest rate.
Again, it sounds like a lot of work, but if you consider the money involved (potential savings every month for the next 30 years), it’s really not a whole lot of effort.
Extreme couponers who spend hours saving a few bucks, I’m looking in your direction…
A Mortgage Broker Might Be Able to Offer a Shortcut
- There’s one little shortcut you can take to make the mortgage shopping part easier
- If you use a mortgage broker they can compare rates from multiple lenders on your behalf
- They have lots of wholesale lending partners at their disposal which can save you time and money
- This is actually a key part of their job – to find you the lowest rate possible from their many partners
One “shortcut” you can take is by consulting with a mortgage broker, who act as middlemen between wholesale banks/lenders and the borrower.
Instead of calling 25 different retail banks to inquire about rates, costs, turn times, eligibility and so on, you can ask a mortgage broker to do all of that for you.
A mortgage broker is basically your own personal shopper, and they will have access to loan programs from numerous banks and lenders.
They’re kind of like independent insurance agents, who can get quotes from a bunch of different insurers, without you having to fill out a quote form 100 times.
Similarly, brokers simply gather your information once and then determine which mortgage lender they work with will offer you the best rate, based on your unique loan scenario.
After THEY shop around, they’ll come back to you with their best rate in the hopes of earning your business.
And if you tell them that a retail bank is offering something lower, you may hear an even better deal out of their mouth.
Can Mortgage Brokers Get You a Better Rate?
- This is a difficult question to answer universally because many factors are at play
- It depends on the wholesale lender(s) the broker does business with
- If these lenders offer low rates and the broker doesn’t take a large commission
- They may offer an unbeatable deal, but still always shop around and negotiate!
At any given moment, retail banks and direct lenders may offer lower or higher mortgage rates than brokers and independent mortgage bankers.
They may not always be lower, and they may not always be higher, which is why you should consider all avenues before deciding on any one company or individual.
In some cases, your loan scenario may not be attractive to the bank offering the lowest rates for one reason or another. Simply put, your loan may not fit their product niche.
And some retail banks just offer higher rates than others because mortgages aren’t their strong suit, or only business, so if you happen to be with that more expensive bank, a broker may have a better rate for you.
If this is the case, knowing who does “like” your type of loan is paramount. With a broker/banker, you don’t need to search around to find that “right” bank. They’ll do it for you.
So it is possible to get a better deal with a broker/banker, depending on the circumstances.
Why Do Some Brokers Have Better Mortgage Rates Than Others?
- Mortgage rates can vary among brokers just like they do with retail lenders
- This is because they work with various wholesale lenders and may select different compensation packages that can affect the rate you receive
- Be sure to shop and compare individual brokers just like you would banks
- Some may charge more than others and/or not be approved with the banks offering the lowest rates
As noted, mortgage brokers work with lots of different lender partners, which means interest rates can vary from lender to lender. This partially has to do with their compensation.
Say one broker decides to get paid 2% on all the loans they originate with a certain bank, while another only charges 1% with that same bank.
That could result in an interest rate of say 3.125% versus 2.875% on the same loan thanks to the difference in commission.
If you only speak to the broker charging 2%, you won’t know that another broker out there can do better because they’re willing to earn less per loan.
The same may be true of the lenders they’re partnered up with. For example, one broker may work with a low-cost lender that the other doesn’t happen to work with.
So while a broker has the ability to shop your rate with multiple lenders, you might want to shop with multiple mortgage brokers to see what’s out there.
You may discover that one broker can beat another broker’s pricing thanks to the lenders they work with and/or their compensation levels.
Lastly, be sure to compare multiple brokers/bankers as well to weed out the bad players.
And as alluded to earlier, a good deal is only worth its salt if it actually funds.
If a broker/banker can get a tricky deal done for you, there’s a lot of value there, even if the rate is slightly higher.
If a big bank drags their feet and isn’t able to get it done in a reasonable amount of time (or at all), their seemingly better deal essentially becomes worthless.
Read more: What mortgage rate can I expect to receive?