A mortgage broker is a person who arranges a mortgage between borrowers (property buyers) and lenders. Sometimes their services are ‘free’ because they are paid a commission from the lender or sometimes they charge you a direct fee.
Using a mortgage broker for your property purchase is optional. You can apply for a mortgage in person at a bank, or you can use a broker for additional assistance. The choice is yours.
Now based on my personal experiences, I think it’s better to use a mortgage broker (Please note, I have never worked in the mortgage industry so I am not trying to sell any brokerage services). Let me tell you why:
Some people may argue that applying for a mortgage in person at the bank is a straight-forward process. You go to your bank, speak with an advisor who informs you of the current interest rates and assesses your eligibility. Thereafter, you provide your support documentations, the application is submitted, and you wait a few days for the decision.
Now I don’t disagree – applying for a mortgage in person at the bank is not a complicated process. If you only want to own one property in your life, then maybe you don’t need a mortgage broker.
But, what happens if the bank does not accept your application? Remember, being a loyal long-term customer at your current bank does not guarantee that your mortgage application will be approved.
In the UK, my mortgage application got declined from my bank because I was not a permanent resident despite being a customer for seven years. This meant I was left on my own to approach other banks and try to negotiate the best interest rates – all whilst having to guess which bank would accept my application without negatively affecting my credit rating.
Remember, every time you apply for a loan, it gets recorded on your credit rating. This means lenders can see if other lenders have approved or declined your loan request(s). It’s not beneficial for your mortgage application to have a list of declined credit applications on your record over a short period of time.
Instead of stressing myself out, I contacted a referred mortgage broker. I met this broker in person and explained my situation.
He then provided me with various repayment forecasts based on my deposit; he explained the interest rates from different banks; and he clarified new changes to the property and banking regulations. Basically he explained the whole mortgage process in simple and easy-to-understand English, all in one meeting.
My broker got my mortgage application approved in three days. As I work full time, it would have taken me a few weekends to meet with mortgage advisors from many different banks.
Now people may argue that mortgage brokers have a preference for lenders that give them the highest commission, and this is probably true in many cases. But as long as you know which lenders you prefer, you can provide the list to your broker who can do a lot of the research for you. But double check the information they provide because though brokers are there to help you make a good decision, they are not there to act as your brain.
Use the expertise of mortgage brokers to fill your skills and knowledge gap
For me, as an investor with multiple properties, it makes logical sense to have an experienced broker as part of my property team. I work full time and though I try to self-educate frequently, I simply don’t have enough time to become a professional mortgage expert. So why not work with a legally qualified mortgage broker who has years of experience, to fill in this knowledge gap?
I see it like running a company. For example, a CEO of a company does not have all the technical skills to run each department, such as operations, finance, human resources, marketing, sales, and so forth.
What the CEO does is hire managers to run each department. The CEO works very closely with each departmental manager to gain an overall understanding of how the business operates, and then uses this insight to devise a strategy on how the business should grow.
The same theory can be applied to property investing. Use the expertise of professionals to fill your skills and knowledge gap. By having a strong team working with you, you will be in a better position to grow your property portfolio.
Please note, though I own a few properties, I am not a legal, financial or professional property expert. I’ve written this post to share my personal experiences and would love to hear your opinions and views.
So, what have been your experiences with using a mortgage broker or applying for a mortgage directly with the bank?
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