Bank or Broker: Who Offers the Best Mortgage?

There has been a lot of press lately covering different types of lending companies.  Good or bad depends on who the reporter is writing for and what slant the story has.  What has come to light is the number of new firms that are stepping in and pushing the big banks. 

There are several different lenders handling mortgages and loans.  There are advantages and disadvantages to every service.  Before a person can pick the best financial product for their situation they need to understand what a mortgage is.

As educated and intelligent as this generation believes they are, they are still buying mortgages – a life long commitment - without understanding what they are buying.  That is similar to buying a car, paying for it, and then waiting to see what type, colour, model, and manufacturer will be delivered to your home.

It is no coincidence that the root of the word mortgage, mort, comes from the French word ‘dead.’  The term ‘dead on the water’ might be a better definition, because homeowners who buy the wrong financial project will pay the consequences for the rest of their lives.

A recent consumer watchdog company surveyed teens and found out that most of them do not understand what an Annual Percentage Rate (APR) is.  Without understanding this, it is impossible to determine what the best product is.

A broker can offer low interest rates because they are able to shop around. However, if this rate floats based on the consumer’s credit rating then the consumer may end up being gouged. 

There is no trick to figuring out the APR. The points represent the loan amount.  If A point is 1% of the loan amount then one point of a £100 000 is £1 000.   Origination points are charged by the lender, and sometimes the broker for originating the loan.

Then there are discount points that are charged up front to lower the payments.  Basically, this means that people who pay a little more up front can pay less each month.

Each bank and broker charges these based on their own figures making it almost impossible to compare mortgage products. 

Low monthly payments are only one thing to consider.  There are ‘service’ fees attached.  All customers should obtain a full list of fees, and whether the fee is subject to change. Banks may have lower fees, but if they sell delinquent accounts to collection agencies then you’ll end up paying right down to the gold in your teeth.

The mortgage ‘term’ traditionally starts at 25 years and can extend as much as 40 years.  People normally obtain 40 year mortgages to lower their monthly payments. However, this dramatically increases the total cost of the mortgage.  In fact, it is possible to end up paying the bank double the value of the house.

One thing that many people don’t understand is that you pay for convenience.  The broker at the shopping mall may appear to have a great deal – but statistically you can almost guarantee that the way these brokers twist the points, attach fees, and other costs like early repayment fees, you’ll end up paying more than you would if you obtained a high interest mortgage from a bank.

Brokers now advertise from websites, over the phone, and through the mail.  First, let me make it clear that there are many reputable companies working through these venues.  Brokers do not have the ‘high exposure’ that banks do, so they solicit customers any way they can.  Unfortunately, if the broker is working for an ‘off shore’ financial company then the customer can find themselves trying to deal with a company which basically owns their home but doesn’t answer to UK regulations or legislature. 

This can put customers feeling that they would do better signing up with a loan shark.

One trick is to ask what the prep fees are.  Brokers can charge whatever they want for prep fees.  This means that the difference paid between broker A and broker B can be hundreds of pounds.

However, the banks are not innocent. They are currently repaying hundreds of thousands of pounds in sterling pounds to consumers who were charged illegal fees on their overdrafts. 

The one difference between the banks and brokers is responsibility for the financial product after the contract is signed.  Brokers take their fee and leave as soon as the contract is signed.  Their job is to find customers the best deal.   Banks sell the mortgage and ‘own’ the mortgage until it is repaid, or until the customer defaults.

If bankers sell the mortgage then the customer is in the hands of a foreign collection agency who are only interested in working the customer over until every last penny is squeezed out of their bank account.

Who is best?  That is simple.  Go with whoever gives you the best deal.  First step is simple.  Find a debt management charity who will help you review mortgage contracts. Pick a few mortgage service companies and review the paperwork.  It could save you tens of thousands of pounds, and maybe it will even save you a trip to bankruptcy court.