A home equity loan is a type of consumer debt that allows homeowners to borrow against the equity in their home. This type of loan is often called a second mortgage because a bank or credit union will lend you a lump sum that you must repay over time. If you don’t, they have the right to claim your house.
Arranging for a home equity loan is usually a fairly straightforward process, as the loan is secured by a property that you already partly own. However, you should look for the best deal, as interest rates and loan terms can vary widely from lender to lender. You should do this yourself, but you can also hire a mortgage broker to help you.
In this article, we’ll look at the role of a mortgage broker in arranging a home equity loan and explain why you would use a broker.
Key points to remember
- Finding and closing a home equity loan is similar to getting a mortgage.
- Borrowers can arrange the loan themselves or use a mortgage broker.
- A mortgage broker may be able to get better loan terms than you would get on your own, but that’s not definitive.
- Mortgage brokers charge fees for their services to either the lender or the borrower.
- Using a broker can save you money, as they might be able to negotiate a better deal on your behalf.
Mortgage and Home Equity Lending Brokers
A mortgage broker is an intermediary in the mortgage process. They act as an intermediary between a financial institution that offers loans secured by real estate and individuals interested in buying real estate who need to borrow money in the form of a loan to do so.
Mortgage brokers make money from lenders, who pay for the extra business they bring. This might give the impression that a loan taken out through a mortgage broker is always more expensive, but this is not always the case. Mortgage brokers often have relationships with many mortgage lenders, and many are very familiar with the mortgage industry. This means that a good broker may be able to get you a better deal than you could get on your own.
Mortgage brokers handle all kinds of mortgages, including “second mortgages,” aptly called home equity loans. Since a home equity loan works in much the same way as a regular mortgage and is offered by many of the same lenders as a regular mortgage, brokers can help you arrange a home equity loan just as they can with the more familiar type. mortgage.
As with traditional mortgages, mortgage brokers can often offer the best deals on home equity loans due to their relationships with multiple lenders and investment pools. That said, you should always do your own research before contacting a mortgage broker. In addition to traditional banks, you can also contact credit unions, credit unions, and mortgage companies. Most borrowers like to get at least three quotes, and a mortgage broker can even help you compare offers.
Many mortgage and home equity loan customers simply assume that a broker can offer a better deal than they could get on their own, but that’s not always the case. Some lenders may offer homebuyers the same terms and rates they offer mortgage brokers (sometimes even better). It never hurts to shop around on your own to see if your broker really offers you a lot.
Advantages of Mortgage Brokers
There are a number of key differences between finding and securing a home equity loan on your own and doing it through a mortgage broker. There are pros and cons to working with a mortgage broker, and you need to weigh them to determine what is best for you.
Working with a mortgage broker has advantages:
- This can save you some work as they will contact the lenders for you.
- They may have access to special offers and lenders that the average borrower does not have.
- They may be able to manage or reduce your fees.
Disadvantages of Mortgage Brokers
On the other hand, mortgage lenders have some disadvantages:
- Your interests and theirs may not be aligned. Looking for a loan that will last for years into the future – an unscrupulous mortgage broker is looking for a quick payment to close your loan.
- Most mortgage brokers charge fees, and sometimes you may have to pay some. Whether you pay these fees depends on the ability of the broker to save you money in other ways.
- Some lenders no longer work with mortgage brokers, so some offers will only be available if you approach a lender directly.
Ultimately, the decision to work with a mortgage broker most often comes down to personal preference. If you have (or can find) a mortgage broker you can trust, work with them to find the best home equity loan. If you feel you understand these loans well enough to find a good one yourself, that’s fine too.
How much does a mortgage broker cost?
It varies a lot. Some mortgage brokers are paid by the lender, others by the borrower. However, most receive a commission. This cost varies widely, but a mortgage broker typically earns between 1% and 3% of the total loan amount.
When should you consult a mortgage broker?
After doing a little research on your own. Take a look at the rates being offered on home equity loans before you see a mortgage broker, or you won’t know if they’re giving you a better deal than you could get on your own!
Do mortgage brokers offer home equity loans?
Most do. This is because many of the same lenders who offer “regular” mortgages also offer home equity loans. A mortgage broker’s relationships with these lenders are their greatest advantage to borrowers.
Finding and securing a home equity loan is a process quite similar to obtaining a “regular” mortgage. And just like a regular mortgage, borrowers have two options: take out the loan themselves or go through a mortgage broker.
A mortgage broker may be able to get you better loan terms than you can on your own, but they may not be. They will certainly charge a fee for their services either to the lender or to you. However, you can still save money by using a broker, as they might be able to negotiate a better deal on your behalf.