Mortgage Broker Tricks to Avoid

Mortgage Brokers have earned themselves quite a reputation for being used car salesmen bent on padding their commissions at your expense.

Should you avoid using a mortgage broker all together and refinance your home mortgage online or with your bank or credit union? Despite the negative stigma, mortgage brokers have access to the best interest rates that will get you the lowest monthly payment.

Mortgage brokers have a number of tricks up their sleeves that you need to be aware of to avoid paying too much; here’s what you need to know to make sure you get a good deal when refinancing your home loan.

Mortgage Broker Tricks to Avoid

Used car sales people earn a commission based on how much you paid, that is overpaid for your car. Your mortgage broker earns a commission the same way. The more you overpay for your home loan, the larger your broker’s commission. The good news is that there are honest mortgage brokers out there willing to work for a reasonable fee; you just have to find the right person to arrange your home loan.

What about banks? Sure, it’s very easy to refinance your home mortgage with a bank or credit union and you might even think you’re getting a good deal. The problem is that your bank is exempt from disclosure laws in the United States known as the Real Estate Settlement Procedures Act. Thanks to their lobby in Washington, your bank is not required to disclose what their profit margin or markup is on your home loan. You’ll never get the same deal refinancing with your bank or credit union that you could get from an honest mortgage broker.

Finding an Honest Mortgage Broker

Finding the right person to arrange your next mortgage isn’t as hard as you might think. You don’t have to wade through countless Good Faith Estimates looking for the best deal; you just need to find the right person to arrange your loan. Who is the right mortgage broker to arrange your next home loan? It’s probably not going to be your brother-in-law’s cousin. You’re also not going to find the right mortgage broker at a large firm, working out of a posh office with an expensive sales staff. The mortgage broker with a full page ad in the yellow pages and a company hummer splattered with their logo is probably going to be unable or unwilling to negotiate the kind of deal you’re looking for with your next mortgage loan.

So what kind of deal are you looking for when refinancing your mortgage? You want the lowest possible mortgage rate that has not been marked up to create an “extra commission” for the broker. This isn’t to say that your mortgage broker shouldn’t get paid for their work; on the contrary, that’s what the origination fee is for. You will find a loan origination fee listed on your Good Faith Estimate and one percent of the loan amount is a perfectly reasonable fee to pay for your mortgage broker’s work. Some mortgage brokers will tell you that they’re not charging you a loan origination fee, that the lender is paying the mortgage broker fee for you. Why on earth would you want to pay a loan origination fee when the mortgage lender’s willing to pay it for you?

Mortgage Lender Paid Fees

Consider for a moment why the lender would pay the mortgage broker fee for you? What’s in it for them? Your mortgage broker will tell you not to worry about this fee because it’s not coming out of your pocket; however, this lender paid fee is the reason most homeowners overpay for their home loans. Remember that the more you overpay for your home loan, the higher your mortgage broker’s commission. This is because lenders reward mortgage brokers that close home loans with higher than necessary mortgage rates with this “extra” commission. The lender does this because the higher your mortgage rate is the greater their profit will be when they sell your loan to investors on the secondary market.

In a nutshell, you’ve just learned the mortgage industry’s dirty little secret. Why would you accept a loan with lender paid fees in exchange for a higher mortgage rate that drives up your payment amount the entire time you keep the loan?