A mortgage broker is a third party who will put together your loan application package and shop it to various banks for the best deal and the lowest rate for their client. A mortgage banker is a glorified broker who functions basically the same way. The main difference between the two is that the mortgage banker might close the loan in their own name and sell it to the end lender, whereas a broker will always close the loan in the name of the end lender.

Either way, they get compensated the same from the end lender. The lender will pay what is called a yield spread premium to the third party for finding the client, working on the loan and getting it to close. It is almost like an independent contractor. The yield spread is a percentage of the loan amount. The amount paid to he broker/banker is determined by interest rate. Typically, the higher the interest rate the more the lender will pay to the third party.

This is how it will affect the borrower and why they need to know the average going interest rate. For example, if the interest rate is 6%, the lender will pay the banker/broker 1% of the loan amount as a fee.On a $100,000, this fee will be a $1,000. If the interest rate is 6.25%, the lender might pay the broker/banker 2% of the loan amount or $2,000.The higher the interest rate that is given to the borrower, the more interest income the loan will make over the life of the loan. In turn, the broker/banker will get a higher compensation form the end lender.A good broker/banker will offer rates that are retail or lower; a bad one will always be higher to make more money.

You should research interest rates, not before you do your loan application, but before you lock in your loan. Once you find a loan officer that you trust to obtain your loan, keep on top of the current rates as the process continues. Show the mortgage people that you are aware of the market and the interest rates.Do not go on websites such as bestrate.com or lendingtree.com; go to the bank web sites to see the current rates.An educated consumer is the best consumer.

Dale Siegel