Mortgage brokers provide an invaluable service when the time comes to obtain a financing solution on an investment property.  Great mortgage brokers provide more than loans with competitive interest rates, many provide creative financial solutions that can help maximize the value of your investment.

Like all real estate professionals, all mortgage brokers are not created equal.  Any basic mortgage broker can locate the lowest interest rate loan you qualify for.  It never hurts to call around to ensure your professional is getting you the best rate, but 90% of the time the rates will be the same.  The value of the mortgage broker can be seen in their creative financial solutions and interest rate advice.

It is important to understand how mortgage brokers are compensated, so that you understand the motivations behind their suggestions.  Good mortgage brokers have your best interest in mind regardless of their compensation, but an informed investor should always be cautious.

First, mortgage brokers are paid an origination fee based on the size of the loan they secure.  This fee can range from 0.5% - 1.0% of the loan amount.  In addition to an origination fee, brokers charge a host of processing fees, which should be scrutinized carefully.  Ask a lot of questions and don’t forget to negotiate.  These fees can add up to another 0.5% - 1.0%.

Second, mortgage brokers receive a rate lock fee.  Fee quotes normally last for 30 days; however, consumers have the option to lock in the quoted rate for some fee for a longer period of time.  Normally, this fee is not worth the trouble.  While rates will certainly move up and down as you decide on the appropriate lender and loan, this “insurance” is usually not worth the trouble or the money.

Third, mortgage brokers receive a fee from the lending institution that originates your loan.  This fee is sort of like a “finder’s fee.”  This is the big watch out because most banks tie the highest compensation to the loans they really want to push on consumers.  While a 30-year fix rate standard loan might be your best option, if a mortgage broker is being paid an extra 1% to put you into a 30-year Adjustable Payment/Adjust Rate Mortgage, you can bet most brokers will be pushing the later even though it is not in your best interest.

Additionally, watch out for fees you don’t understand.  Yield Spread Premiums for example represent the amount a broker charges over the offered interest rate.  Essentially, if you pay this fee, it means your broker did not get you the best rate.  Know your credit score because the more challenged your credit score the more fees brokers will assess.  Ask questions and negotiate, negotiate and then negotiate some more.