Originally Posted by gharari
People, mortgage brokers are making money on you. You can get a better rate without these sharks. Go direct to the lender and you'll save money.
I hate these sweeping generalizations !!!!
Mortgage brokers make money of you -
Of course they do! They provide a service (they find you a lender and service the loan that would otherwise have to be done by the lender) and get reimbursed for their time. When was the last time your local Subaru dealer serviced your car for free??
Go direct to the lender and you'll save money -
Not necessarily true!
Mortgage brokers get reimbursed for their services in two ways:
1. fees paid to the broker by the borrower
2. fees paid to the broker by the lender for servicing the loan and for "selling" the borrower a loan at interest rates that are above par or market rates (usually referred to as yield spread premium or YSP)
Either way, it comes out of your pocket, whether you are aware of it or not. The broker may or may not be legally obligated to tell you the YSP he will make on the loan prior to closing (he is supposed to give you a good faith estimate, but an estimate is all it is). Brokers can make as much or as little money as they want by how much they mark up the wholesale rates, and this is where the potential for abuse comes in (and current Federal regulations make it really easy for the system to be abused). As an educated consumer, it is your responsibility to keep your eyes open and shop around so you have an idea for what market rates are. Or, you can be really smart and engage the broker to be your agent for a fixed, prenegotiated fee that includes both payments from the lender and the borrower (make sure to get this agreement in writing). That way the broker is working in your best interest and has no incentive to hide the wholesale rates from you. And you know exactly how much his service is going to cost you. Expect to pay between 1 and 2 percent of the loan amount (total) in brokers fees depending on the specifics of the loan and your situation.
Or, you could shop around for a mortgage with direct lenders (like Equityguy/Chase Manhattan). Problem is, you are not as well educated about the market as the broker is, you do not have access to the wholesale rates that the broker has access to, nor do you have the time and energy to track down every lender for a quote. Also, direct lenders process their own loans so you will never know how much the "YSP" portion of the fees are (how much over wholesale you are paying) because they will not be included in the closing statement, in contrast to when an independent broker services your loan.
Also, when talking to a broker, remember to ask if he is employed by or an agent of a funding institution, or if he funds the loan himself. I prefer to deal with independent brokers so they can shop the market and not be tied to a single lender. Check out http://www.mtgprofessor.com/Default.htm
for all the information you could ever want about mortgages.
BTW, I'm not a mortgage broker or an expert on the subject, just an informed consumer