Wholesale lenders offer the mortgage broker wholesale rates in return for the mortgage broker performing the expensive and time consuming function of originating the loan. The mortgage broker pre-qualifies the borrower, verifies the credit, income, and property aspects of the loan, and then presents the loan to the lender. Other lenders maintain staff and facilities to perform these functions and must include these costs in their rates.
Another reason brokers can offer discounted rates is that the lenders are buying mortgages that they may not have had access to previously. The reality is that you are not about to make an application at every lending institution! Your own banker is typically not authorized to offer you the discounts that are available.
If you consider the time-consuming effort of shopping numerous lenders and having to contact them on a daily basis for rate updates, it is easy to see why mortgage brokers are the number one choice of informed borrowers today.
The service is free. Major lending institutions will pay a referral fee to a Mortgage Broker for sending them quality, qualified mortgage applications. In some circumstances, a borrower may not qualify for a traditional mortgage due to high debt, questionable credit, or other reasons stated by a lending company, the Mortgage Broker may be able to locate alternate sources of funds. In these cases there would be a fee payable, usually included in the loan or mortgage. Other fee-based services provided include; vehicle loans, personal loans and lines of credit.