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Why You Should Never Use a Mortgage Broker

Owning your own house is not an easy thing. The main factor to consider if you want to be a home-owner is money. If you have the money, then by all means, buy or build your dream house. However, most Americans are financially-challenged. That is why there are numerous banks and other lending companies out there. They offer mortgages to people who want to have their own property but are not quite financially there yet. And for those who are unfamiliar with the ins and outs of the financing business, there are individuals or firms out there who are willing to lend a helping hand, albeit for a fee, of course. They are called mortgage brokers.

Brokers are individuals or a firm that acts as a mediator between buyer and seller. In the case of mortgage brokers, the buyer is the prospective home-owner while the seller is the financial institution. A mortgage broker acts as a conduit between the two parties and receives a commission for their professional service, which is basically to help pave the way for the buyer to get a loan from a lender.

The main purpose for any individual in hiring the services of a mortgage broker is for him or her to have a full grasp of the ins and outs of applying for a mortgage. For some, mortgage brokers are essential. For others, they are just here to take advantage of unknowing or ignorant people. Just like in any other life choices we make, there are advantages and disadvantages in acquiring the service of a mortgage broker that need to be considered.

But why should you never use a mortgage broker? Clearly the cons outweigh the pros. First of all, the definition of a mortgage broker itself merits a negative thought. While it may be true that these mortgage brokers or middlemen have a vast knowledge of the ins and outs of mortgages and are familiar with different finance institutions, it is also true that they require payment for their services. These payments may come as service fees which the buyer shoulders. It can also come as commissions whenever a deal is finalized. In some cases, the banks are liable to pay for their services. This is formally known as the Yield Spread Premium. The YSP is a sort of bonus that the banking institution provides the mortgage broker for persuading the borrower that it is better to take a deal with high interest rate rather than paying a huge amount upfront. This kind of transaction is more favorable to the bank as they will earn more from this. For some people, hiring the services of a mortgage broker entails additional expenses that one can do without.

Getting a loan from banks is not easy picking. It should not be taken lightly. However, hiring a mortgage broker is not any wiser. The best thing to do is to be familiarized with everything involved in getting a mortgage. Take the time to talk to people you know who have successfully been provided loans. Visit numerous banks and other financial firms and make a list of their positive and negative points. Compare interest rates, upfront payments, length of payment scheme and other valuable statistics. You can even consider the bank's credibility, history and customer service. Consider this, the more you know about financing, or any other endeavor for that matter, the better and stronger your foothold is. The more you know about mortgages, the lesser the chance of you being duped into paying for something that is not worth it. As they say, knowledge is power.