Avoiding Mortgage Overcharges
When looking for a principal mortgage, you might consider
using a broker. A mortgage broker does a lot of the difficult
leg-work of checking out the market and finding you the best
deal on your loan for you. However, using a mortgage broker
also presents the risk of being overcharged, especially for
Brokers are, by nature, independent contractors, and as such
are free to charge whatever they choose. Brokers profit by
adding an additional price to that quoted by a lender, called
a markup. Brokers will often charge the highest markup they
can get away with, especially if they believe the customer
has not or will not shop to find out if the price is fair.
The problem is further complicated by the unfortunate fact
that many borrowers don’t have a true grasp of how much
the broker is charging them until closing, when it is then
too late to change any of the terms of the agreement.
There are two ways to prevent overcharges by mortgage brokers.
The first is the time-consuming and difficult process of shopping
other brokers. The second is to hire a broker to shop for
you in exchange for an upfront fee.
This second method is often preferable, and works by forcing
brokers to set a fee in advance. The fee needs to be specified
in dollars, not in points or other percentage amounts. Setting
a dollar fees gives the broker the same incentive to spend
time on a small loan as he would a large loan. Many brokers
don’t like operating in this manner, but others, called
upfront mortgage brokers, operate exclusively under this method.
What constitutes a reasonable fee for an upfront broker is
not an easy question, since it depends largely on the borrower’s
individual characteristics. For example, a borrower with good
credit who qualifies easily requires less effort on the part
of the broker, so will be charged a lower fee than a borrower
with poor credit or other factors that complicate the process.