There are lots of dishonest brokers available that can easily rip you off. For example, a dishonest broker can ask you for application fees, processing fees, etc. They might offer you lucrative interest rates with various hidden fees or hidden conditions that will cause problems in the future.
- A mortgage broker works for the borrowers and helps them find an affordable mortgage that suits their requirements
- The fees of a mortgage broker can be 1% to 2% of the mortgage amount
- In some cases, the lender could pay extra money to the broker so that the broker could negotiate a more expensive mortgage rate
- You should always check all the legal terms and papers of your mortgage deal to find out whether there are any hidden fees associated with the offered mortgage
What Is a Mortgage Broker?
A mortgage broker is a person who works as a middleman between potential borrowers and lenders. The main duty of a broker is to make the deal happen and close the deal smoothly. Usually, an independent broker works for the borrowers and helps them find an affordable mortgage that suits their requirements. On the other hand, brokers that work for loan companies usually offer deals to borrowers who mostly prefer the lender. So, according to many mortgage experts, it is a wise decision to choose an independent broker. A mortgage broker also does various types of legal work and paper works related to a mortgage and helps you successfully close the deal.
How a Mortgage Broker is Paid?
If you can understand how a mortgage broker is paid then you will be able to understand how they can rip you off. Usually, a mortgage broker is paid either by the borrower or the lender or in some cases by both parties! The fees of a mortgage broker can be 1% to 2% of the mortgage amount. So, if you have a mortgage of $250,000 then the mortgage broker will receive a fee between $2,500 and $5,000. There is more catch about the fees of mortgage brokers. For example, the lender can pay extra money to the broker so that the broker could negotiate a more expensive mortgage rate. So, if that happens then the borrower will end up paying more interest over the whole loan term.
How Mortgage Brokers Can Rip You Off?
There are many ways a mortgage broker can rip off a broker. Some common ways are –
1. Hidden Fees
If the mortgage broker offers you a mortgage with a lower interest rate then don’t become happy. Check all the legal terms and papers to find out if there are any hidden fees associated with the offered mortgage. Once you close the deal, the lender will introduce these types of fees to you. Moreover, sometimes the lenders tell the borrower that they don’t qualify for the previous interest rate. So, if you want to avoid these types of hidden fees then ask the mortgage broker to describe to you all the fees associated with the mortgage. Moreover, you can also ask the broker to send you a loan estimate with a rate-lock confirmation. This information will also help you compare other lenders and their offers.
If a mortgage broker enforce you to go for an expensive loan with a higher interest rate then it is considered Steering. If you see that the mortgage broker is always offering high-interest rate loans which you are over qualified for, then ask the broker to find a loan for you that has a lower interest rate. Moreover, if you have a better credit score then you will automatically qualify for a more affordable mortgage with a lower interest rate. So, what you can do is, search for yourself and see if you can find better options than the broker is offering to you.
3. Loan Flipping
This is another way a mortgage broker can rip you off. Usually, loan flipping happens when the lender put pressure on the borrower to refinance multiple times. When you refinance, the lender receives certain fees and you lose money. Moreover, the mortgage broker will also receive a small commission. For loan flipping, as a borrower, you don’t receive any benefits.
4. Not Disclosing Prepayment Penalties
If the mortgage broker doesn’t disclose prepayment penalties then you must realize that there is something fishy going on between the broker and the lender. If your loan comes with prepayment penalties and if you make prepayments then you will have to pay a penalty. Usually, this type of disclosure is listed in loan documents and appears in the fine print. If the broker is unethical then he/she might hide this information and create a problem for you. This is a very important thing because the broker is benefited in two ways; one is the prepayment and the other is the penalty fees for the prepayment. So, if you appoint any broker on your behalf then check every detail before closing the deal.
5. Mortgage Wire Fraud
Nowadays, it has become a very common fraud activity. Many scammers pretend as escrow officers or lenders or in other cases mortgage brokers. What they will try to do is, target the potential borrower and try to get the closing costs from the debtors. This type of scam is very difficult to identify and if you become a victim of this type of scam then you will find it very difficult to get your money! So, what you can do is, keep your eyes on emails and notices that are sent to your mail. Check and see if you find anything fishy. Moreover, you should try to contact with the lender and see if they have your mortgage application.
6. Fake Real Estate Agents
Nowadays you will see lots of fake agents who pose and wear dresses quite similar to a real property agent. Moreover, they also create and carry phony licenses and work histories. You have to be very careful about this type of fake agent. What you can do is verify their agent number online to see if the person is really a genuine real estate agent or a fake.
FAQs about How Mortgage Brokers Rip you Off
When you should say no to a mortgage broker?
There are some important characteristics that indicate that it is a fake broker or an agent and you should say no to that person. They are –
- If you receive any untruthful/wrong information
- If the broker hides important information
- If the broker forgets to pay the bills on behalf of you and as a result, you have to pay late fees
- The broker has changed his job very frequently in the last 2 – 3 years
- If the broker has a fake license
- If the broker only offers high-interest rate mortgages, etc.
Is it worth using a mortgage broker?
Well, it is very difficult to say because hiring a broker mortgage has advantages and disadvantages. One key advantage is, that if you are very busy then the broker can complete the work for you. Moreover, brokers also have a large network so you can find a suitable mortgage quite easily. However, there are chances that the mortgage brokers might put the needs first and offer you expensive loans. Moreover, you have to pay a certain amount of broker fees if you hire a mortgage broker. So, whether a mortgage broker is worth hiring totally depends on your needs and financial condition.
How do I know if my mortgage broker is bad?
There are many ways you can say whether a mortgage broker is good or bad. If the broker hides important information and conditions from you then the broker is definitely bad. Moreover, if the broker also charges additional fees then it is also an indication that the broker is bad!
Is it better to work with a mortgage broker or bank?
The answer to this question depends on quite a few things. If you are looking for a lot of loan options to compare and find the best deal then a mortgage broker will be the best option for you. On the other hand, if you want to save some money on broker fees and want to have more control over your mortgage then the bank will be the best option for you.
Last Updated on November 5, 2022 by Magalie D.
Magalie D. is a Diploma holder in Public Administration & Management from McGill University of Canada. She shares management tips here in MGTBlog when she has nothing to do and gets some free time after working in a multinational company at Toronto.