There is absolutely no way they can charge more to give you a higher rate; compensation amounts are set with each lender and cannot change depending on the interest rate you receive. Brokers work with wholesale lenders and receive wholesale fees, which are much lower than those charged by retail banks. As noted, mortgage brokers work with many different lending partners, which means that interest rates can vary from lender to lender. This has to do in part with your compensation.
Compensation is one of the key differences between mortgage brokers and direct lenders. Mortgage brokers are paid according to a fee. In most cases, the loan origination fee charged by the bank is paid to the broker. Because mortgage rates from lenders vary, it's wise to look for a mortgage from multiple lenders, as it could save thousands of dollars over the life of the loan.
You may have heard that mortgage brokers offer the lowest interest rates thanks to their wholesale partners. A good mortgage broker should be able to provide valuable information, such as which lenders lend money in certain areas, which offer a specific type of mortgage, and which lenders accept or avoid loan applications for certain types of homes, such as cooperatives, condominiums or multi-family homes. From finding the best interest rate and the lowest rates to completing the application and closing the loan on time, mortgage brokers are well versed in the experience of obtaining a mortgage. Mortgage brokers then guide customers through the application and underwriting processes, often collecting application materials, analyzing the borrower's credit history, and verifying income and employment information.
A direct lender is a financial institution or private entity that actually lends the loan for a mortgage. Mortgage brokers help prospective borrowers find a lender with the best terms and rates to meet their financial needs. Mortgage brokers once had a risky reputation, so it's no surprise that many people are still hesitant to use them. As mentioned earlier, using a mortgage calculator is an easy way to check if you can find better options.
Mortgage brokers don't anticipate loans, but instead offer a one-stop shop with access to several lenders, while a direct lender is a single entity that eliminates the middleman. A mortgage broker acts as an intermediary by helping consumers identify the best lender for their situation, while a direct lender is a bank or other financial institution that decides if you qualify for the loan and, if so, delivers the check. Working with a mortgage broker is a great option for anyone who wants to eliminate some of the legwork and headaches of the mortgage process. Mortgages are the bread and butter for a broker, but a loan broker may also be managing other types of loans and may not be as familiar with mortgage lending as a mortgage broker is.
Typically, a mortgage broker works with many different lenders and can offer a variety of loan options to the borrower. If you prefer not to receive dozens of calls from mortgage brokers, you can search for them directly through sites that bring together local and independent mortgage brokers from across the country. They can also keep you away from certain lenders with onerous payment terms hidden in their mortgage contracts.