A home equity loan is a type of consumer debt which allows homeowners to borrow against the equity in their homes. This type of loan is often referred to as a second mortgage, because a bank or credit union will lend you a lump sum which you must pay back over time. It you don’t, they have a right to claim your house.
Arranging a home equity loan is typically quite a straightforward process, because the loan is secured against a property you already partly own. However, you should shop around for the best deal, because interest rates and loan terms can vary a lot between lenders. You should do this yourself, but you can also use 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.
- Finding and closing on 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 secure better loan terms than you’d get on your own, but it is not definite.
- Mortgage brokers charge a fee for their services—either to the lender or to the borrower.
- Using a broker might save you money because they might be able to negotiate a better deal on your behalf.
Mortgage Brokers and Home Equity Loans
A mortgage broker is a middleman in the mortgage loan process. They act as an intermediary between a financial institution that offers loans that are secured with 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 in. That might make it sound like a loan arranged through a mortgage broker is always more expensive, but that’s not always the case. Mortgage brokers often have relationships with many mortgage lenders, and many know the mortgage industry very well. This means that a good broker may be able to get you a better deal than you could get on your own.
Mortgage brokers deal with all kinds of mortgage loans, including “second mortgages,” properly called home equity loans. Since a home equity loan works in much the same way as a regular mortgage, and since they are 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 of mortgage.
As with traditional mortgages, mortgage brokers can often offer the best deals on home equity loans because of their relationships with multiple lenders and investment pools. That said, you should always do a little of your own research before contacting a mortgage broker. In addition to traditional banks, you can also reach out to savings and loans, 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 deliver a better deal than they could get on their own, but this is not always the case. Some lenders may offer home buyers the very same terms and rates that they offer mortgage brokers (sometimes, even better). It never hurts to shop around on your own to see if your broker is really offering you a great deal.
Advantages of Mortgage Brokers
There are a number of key differences between finding and closing on a home equity loan on your own, and doing so via a mortgage broker. Working with a mortgage broker has advantages and disadvantages, and you should weigh these in order to work out what makes the most sense for you.
Working with a mortgage broker has benefits:
- It may save you work, because they will contact lenders for you.
- They may have access to special offers and lenders that the average borrower doesn’t.
- They may be able to manage or reduce your fees.
Disadvantages of Mortgage Brokers
On the other hand, mortgage lenders have some drawbacks:
- Your interests and theirs might not be aligned. You are looking for a loan that will be good years into the future—an unscrupulous mortgage broker is looking for a quick payment for closing your loan.
- Most mortgage brokers charge fees, and sometimes you may have to pay some of these. Whether it makes sense to pay these fees depends on whether the broker can save you money in other ways.
- Some lenders no longer work with mortgage brokers, so some offers will only be available if you go direct to a lender.
Ultimately, the decision of whether to work with a mortgage broker most often depends on your personal preference. If you have (or can find) a mortgage broker you can trust, work alongside them to find the best home equity loan. If you feel you understand these loans well enough to find a great one yourself, that’s fine as well.
How Much Does a Mortgage Broker Cost?
It varies a lot. Some mortgage brokers are paid by the lender, some by the borrower. Most are paid a commission, however. This cost varies greatly, but a mortgage broker generally earns between 1% and 3% of the total loan amount.
When Should You See a Mortgage Broker?
After you’ve done a little research for yourself. Take a look at the rates offered on home equity loans before you see a mortgage broker—otherwise, you won’t know if they are getting you a better deal than you could get yourself!
Do Mortgage Brokers Offer Home Equity Loans?
Most do. That’s because many of the same lenders who offer “regular” mortgages also offer home equity loans. A mortgage broker’s connections with these lenders is their biggest advantage for borrowers.
The Bottom Line
Finding and closing on a home equity loan is a fairly similar process to getting a “regular” mortgage. And just like a regular mortgage, borrowers have two options: arrange the loan yourself, or go through a mortgage broker.
A mortgage broker may be able to get you better loan terms than you can get on your own, but they may not. They will certainly charge a fee for their services, either to the lender or to you. You may still save money by using a broker, however, because they might be able to negotiate a better deal on your behalf.