Ask Stacy: Should I Use a Mortgage Broker or a Bank?

What's Hot

2 Types of Black Marks Might Vanish From Your Credit File SoonBorrow

6 Ways the Obamacare Overhaul Might Impact Your WalletInsurance

7 Dumb and Costly Moves Homebuyers MakeBorrow

This Free Software Brings Old Laptops Back to LifeMore

Obamacare Replacement Plan Gets ‘F’ Rating from Consumer ReportsFamily

Beware These 12 Common Money MistakesCredit & Debt

21 Restaurants Offering Free Food Right NowSaving Money

17 Ways to Have More Fun for Less MoneySave

House Hunters: Beware of These 6 Mortgage MistakesBorrow

30 Household Uses for Baby OilSave

25 Ways to Spend Less on FoodMore

Nearly Half of Heart-Related Deaths Linked to These 10 Foods and IngredientsFamily

5 Surprising Benefits of Exercising Outdoors in WinterFamily

10 Ways to Save When You’re Making Minimum WageSave

Boost Your Credit Score Fast With These 7 MovesCredit & Debt

7 Painless Ways to Pay Off Your Mortgage Years EarlierBorrow

The Most Sinful City in the U.S. Is … (Hint: It’s Not Vegas)Family

The True Cost of Bad CreditCredit & Debt

10 Companies With the Best 401(k) PlansGrow

This Scam Now Tops ID Theft as the No. 2 Consumer ComplaintFamily

6 Stores With Awesome Reward ProgramsFamily

6 Ways to Save More at Lowe’s and The Home DepotSave

6 Healthful Treats for Your DogFamily

New Study Ranks the Best States in the U.S.Family

Thousands of Millionaires Moving to 1 Country — and Leaving AnotherGrow

Strapped for College Costs? How to Get the Most From FAFSABorrow

6 Overlooked Ways to Save at Chick-fil-AFamily

Ask Stacy: What’s the Fastest Way to Pay Off My Mortgage?Borrow

Where to Sell Your Stuff for Top DollarAround The House

8 Ways to Get a Good Price on a Shiny New AutoCars

Ask Stacy: How Do I Start Over?Credit & Debt

Secret Cell Plans: Savings Verizon, AT&T, T-Mobile and Sprint Don’t Want You to Know AboutFamily

30 Awesome Things to Do in RetirementCollege

14 Super Smart Ways to Save on TravelSave

The Rich Prefer Modest Cars — Should You Join Them?Cars

You’ll Soon Pay More to Shop at CostcoSave

10 Ways to Save When Your Teen Starts DrivingFamily

When you're borrowing big, like for a mortgage, even a tiny difference in interest can mean big bucks over time. So what's the best way to find the best deal?

This week’s reader question is about who to approach when you’re looking for mortgage money. Here it is:

I am going through the mortgage process the second time. The first mortgage was for a very low amount, so I didn’t really learn much about the process. My question is what is the difference between using a mortgage broker and a bank to secure financing? What are the advantages and disadvantages of both? — John

Before we get to John’s answer, check out a video I did a couple of years ago about mortgage shopping.

Now let’s get to John’s answer, starting with what the term “broker” means and what they do.

What brokers do

Whether you’re talking real estate broker, stockbroker, insurance broker, mortgage broker or pawnbroker, they all have one thing in common: They’re middlemen who get paid to facilitate a transaction.

Logic would suggest that leaving out the middleman and dealing directly would allow for a less expensive transaction. But if brokers didn’t routinely save more than enough to offset their expense, they wouldn’t exist.

Stockbrokers have relationships with several exchanges, so they can get you the best price when you buy or sell stocks. Insurance brokers have relationships with multiple insurance companies, so they can get you the best price when you buy insurance.

And mortgage brokers have relationships with several mortgage lenders, so they’ll often find you the best deal on a mortgage.

In addition, brokers often call their own shots. In other words, they can choose to work for less to get a deal done. The salaried employees at giant banks are less likely to be flexible.

Mortgage broker or direct lender?

When I need a mortgage, more often than not I’m going to use a broker, for the reasons cited above. According to Zillow, that’s probably the best idea. From an article on their site:

Wholesale mortgage brokers will always have access to lower interest rates because of the fact that the broker does all of the work on the loan, from origination to qualification to submission to closing;  a “direct lender” will have at least two to three people within the bank that will need to work on the loan to get it to closing and all of them will demand a paycheck.

How much can a broker save you on a mortgage? According to Zillow, between a quarter and half a percentage point. That may not sound like a big deal, but borrow $300,000 at 5 percent, and you’ll pay a total of about $280,000 in interest over 30 years. Raise the rate by half a percentage point to 5.5, however, and your total interest bill rises to $313,000. That’s $33,000 more — enough for a new car.

Brokers are also more likely to find specific programs that meet your personal needs. When you go to a direct lender, they’ll attempt to fit your loan into their available programs. An experienced broker, on the other hand, will start with your situation and find the lenders or programs that best suit you.

A broker may also have access to lenders you don’t. Brokers often deal with private lenders that don’t deal directly with the public.

Since they’re often working on commission, no deal means no payday for brokers. That means they’re more likely than a bank to show you only the loans you’ll be approved for.

Finally, they’re less likely to keep “banker’s hours,” meaning they’ll likely be more responsive in the evenings and on weekends.

Put it to the test

There will certainly be exceptions to what I’ve said. There are undoubtedly direct lenders who go out of their way to accommodate borrowers, and there are inexperienced, uninformed and unscrupulous brokers.

Fortunately, however, there’s no law that says you can’t try both.

The last time I refinanced a house, that’s exactly what I did. First I went to my existing lender and asked what they could do for me. At the same time, I used our mortgage search to find a couple of brokers promising low rates. In the end, it was a broker who got me the lowest rate with the fewest fees. See if it’s the same for you.

Got a money-related question you’d like answered?

You can ask a question simply by hitting “reply” to our email newsletter. If you’re not subscribed, fix that right now by clicking here.

The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.

Got any words of wisdom you can offer for this week’s question? Share your knowledge and experiences on our Facebook page.

Stacy Johnson

It's not the usual blah, blah, blah

I know... every site you visit wants you to subscribe to their newsletter. But our news and advice is actually worth reading! For 25 years, I've been making people richer without making their eyes glaze over. You'll be glad you did. I guarantee it!


Read Next: 50 Ways to Make a Fast $50

Check Out Our Hottest Deals!

We're always adding new deals and coupons that'll save you big bucks. See the deals to the right and hundreds more in our Deals section.

Click here to explore 2,006 more deals!