House key on a house shaped silver keyring in the lock of a door

How Mortgage Lending Works

Your bank, or trust company, or any other financial institution for that matter, provides investment or savings opportunities in a multitude of ways. At a typical bank you receive a convenient debt account, holding an amount that the bank is obligated to produce to you upon request. This, however, is done for many people at once, and since not everyone will cash out at once, the bank is legally allowed to reinvest a portion of its reserve.

This reinvestment is handled in many ways, one of which is by lending mortgages to ideal applicants. You can actually go directly to the bank to apply for a mortgage, which many people do. A dollar amount is chosen based on the value of the property you will buy plus the interest amount of the mortgage. The bank buys the house and charges you monthly until the debt is paid.

So where do brokers come in. Well, there are many banks in competition with each other. Remember, they always profit on lending from interest. If the borrower defaults on payments, the bank gets the house, and can usually still make their investment profitable. So, they like to lend.

In order to bring in more business for their mortgage department, the banks offer competitive rates. Now, you could shop the bank's yourself, but you'd be subjected to many sales pitches and many credit-harming checks before finding the best offer available.

Mortgage brokers are agencies that banks do regular business with. The banks provide all their rates and application requirements ahead of time so the broker may make the best choice for the client as easily as possible. Because of this arrangement, brokers send a lot of business their way and have a bit more negotiating power that the average customer.

How does the broker get paid you ask? Simple. It\'s typically a commision agreement where the lender flips the bill, not the client. It\'s more than worth it for the lender because maintaining that consistent stream of pre-qualified business is invaluable. Of course there are other strategies for payment such as trailer fees, but regardless, you will never see a bill for your broker\'s commission paycheque.

Hopefully this gives you a bit more insight into the lending system, and my wish is that you will recognize the genuine opportunity that a broker can provide you.

Did you know...

I personally make the effort to ensure the best possible product to fit your individual needs, all with a single credit check.

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