Wholesale vs Retail Mortgage: Understanding the Differences

By Ciprian Morariu Published: April 1, 2024

Wholesale vs Retail Mortgage

The real estate industry is wide and diverse, like a giant wheel made up of an array of smaller parts coming together to propel the wheel forward. 

One such important cog of the industry is the mortgage loan industry. It serves the essential function of helping consumers achieve their monetary dreams and goals of becoming homeowners. 

If you are a consumer who has tried to obtain a mortgage loan, you might have come across terms like wholesale mortgage and retail mortgage. 

Alternatively, you might be an aspiring real estate mortgage loan officer curious to understand more about the lending ecosystem. 

The fact is - the mortgage industry is complex and filled with technical terms and jargon that demand clear and simple explanations. 

Irrespective of your background or reasons to dive deep into the subject of mortgage types, in this article you will learn about the difference between wholesale and retail mortgages. 

This is important if you are considering obtaining a loan for a new home purchase or refinancing your existing mortgage. 

Keep on reading to find out more about how to choose the right mortgage lender to get the best interest rate and make a sound financial decision. 

Introduction to Wholesale and Retail Mortgages

Definition of Wholesale Mortgage

So what is wholesale lending and how is it defined? Let’s find out. 

A wholesale mortgage is described as a mortgage that originates from the source and is marketed by loan officers and mortgage brokers. 

The wholesale mortgage programs are then offered to clients and borrowers along with the various loan options. 

Wholesale mortgages are referred to as banks and financial institutions that fund loans. 

Brokers discuss the mortgage loan requirements with borrowers looking for mortgage financing. Based on their needs and financial health, loan officers and brokers present the most suitable mortgage options. 

After a borrower has decided on their preferred mortgage plan, the wholesale mortgage provider funds the loan. 

Definition of Retail Mortgage

Before diving into the detail of retail mortgage, a quick look at what it takes to become an individual licensed mortgage officer. 

To be awarded a mortgage loan originator license, a person must be at least 18 years old and complete the mortgage licensing course. This MLO course online is convenient as it offers the flexibility of studying on the go.   

Once the course is completed, aspiring MLOs should pass the licensing exam to be awarded a mortgage loan originator license. 

Retail mortgages are processes where an individual mortgage officer or loan originator links up directly with potential borrowers. 

Financial institutions and lenders have a direct relationship with the customers throughout the loan process. 

In a retail mortgage process, there is no middleman between the lenders and borrowers. 

Compared to wholesale mortgages, there is a direct and more convenient relationship between the two parties because there is no intermediary between them. 

Retail mortgages are usually more streamlined and straightforward in terms of closing a mortgage loan financing. However, they do not provide as many options as wholesale mortgages do. 

Understanding Wholesale Mortgage Loans

Basics of Wholesale Mortgage Industry

A mortgage lender is defined as an individual, entity, company, or organization that is capable of providing loan and financing services to businesses and individuals. 

A wholesale mortgage provider partners with banks, credit unions, and financial institutions, which ultimately make financial services and products available to consumers. 

Therefore, in wholesale mortgages, the lenders do not interact directly with the consumers and instead, an intermediary like a mortgage loan officer is the one collecting and completing paperwork and documentation to submit it to the mortgage lender. 

Generally, an intermediary loan officer or mortgage provider works with multiple wholesale mortgage providers to find out the best possible loan options for their customers. 

The intermediaries then present the loan options and related terms to the borrowers. 

On the other hand, wholesale mortgage loans are provided by financial institutions and banks that act as intermediaries between the source of the loan (or loan originators) and the consumers.

Wholesale Mortgage Brokers and Financial Institutions 

The wholesale mortgage industry is a linkup between banks and mortgage brokers. The sector is also referred to as third-party and loan originators. 

Let us take a closer look at how brokers and wholesale lenders work together with the help of an example: 

It all starts with a mortgage broker connecting with a borrower to know about the loan requirements. After getting all the required documents from the potential borrower, the broker submits them to the wholesale lender who evaluates the loan application. After approval of the loan, the broker contacts the borrower and hands over the loan sanction letter.  

The wholesale lender then transfers the funds to the mortgage broker who finally notifies the borrower about the fund transfer. The borrower signs the closing documents. 

In addition to that, a mortgage broker performs the following set of additional duties: 

  • Collect all the necessary information, paperwork, and documents required for applying for a mortgage loan
  • Work closely with the borrowers to help them complete the loan application successfully
  • Compare, evaluate, and suggest suitable mortgage loan options to meet the needs and requirements of a borrower

They earn a commission in exchange for their services which is generally paid by the borrower and in some cases by the lender as well. 

Benefits of Wholesale Mortgage Loans

Let us take a closer look at some of the benefits offered by wholesale lending for borrowers: 

  • Wholesale mortgage lending requires minimum efforts from borrowers as they are provided with the best plans and products by brokers who do the legwork. The application process is streamlined as all the paperwork is handled by the mortgage broker. 
  • Wholesale mortgage lending provides considerably more loan products, services, and options for borrowers with each having their interest rates and credit terms. There are a variety of flexible loan programs and payment plans to meet the borrower’s needs. 
  • Wholesale mortgage loans are generally considered more cost-efficient for borrowers throughout a 20 or 30-year mortgage plan due to the wide range of options available. 
  • Wholesale mortgage loans are known for promoting entrepreneurship and driving financial growth in the lending market by working in tandem with mortgage brokers, banks, credit unions, and non-bank lenders. 

Drawbacks of Wholesale Mortgage Loans

As advantageous as wholesale mortgage loans are, there are a couple of drawbacks too which one should consider before opting for them. Let’s take a look at them below: 

  • Wholesale mortgage loans do not offer a direct relationship between the lender and the borrower. There is always an intermediary present between the two parties which eliminates direct contact with the lender. 
  • By opting for wholesale mortgage loans, consumers have to factor in the cost of paying the mortgage broker fees. Depending on the state, property type, and expertise of the mortgage broker, this can become a significant additional expense for the borrower. 
  • In the unforeseen event of a credit market crash or high-interest rates, the wholesale mortgage lender might be forced to apply for bankruptcy and cause problems for borrowers. 

Exploring Retail Mortgage Loans

Overview of Retail Mortgage Industry

If you are in the market for securing a mortgage loan for your home, you might have come across the term retail mortgage. 

Have you wondered what is retail mortgage and how it works? Let’s take a detailed look next. 

Retail mortgage loans are provided by a lender who works directly with the borrower, which could include individuals, entities, and companies. 

Banks, credit unions, and mortgage bankers are some examples of retail mortgage lenders who provide financial products and services directly to retail consumers.  

Retail Mortgage Lenders

Retail mortgage lenders provide retail mortgage loans which are characterized by a type of loan that is primarily secured by retail consumers for their personal needs. 

Retail loans are generally secured instantly on an urgent and immediate need basis by the borrowers. 

The payment terms and interest rates for retail loans are determined by the creditworthiness and income of the borrower. It is also influenced by industry and market conditions. 

Let’s take a look at some of the most popular types of retail loans provided by retail lenders: 

  • Personal loans: are loans that are not backed by any form of collateral from the borrower. They are unstructured loans and come without any end-user restrictions. Personal loans can be obtained by borrowers directly from retail lenders. 
  • Home loans: are provided by retail lenders to borrowers for financing the purchase of their dream property. Home loans have flexible payment plans and various financing options based on interest rates, type of home, and the credit-worthiness of the borrower. 
  • Vehicle loans: are obtained to fund the purchase of a vehicle by a borrower. They also offer flexible financing options and require a minimum down payment amount. Different retail lenders might offer different interest rates and payment terms. 

In addition to the above, a retail mortgage loan could also include credit card loans, education loans, and any other type of personal loan. 

Advantages of Retail Mortgage Loans

Let’s take a look at some of the advantages of retail loans that make them an attractive choice among borrowers: 

  1. Retail mortgage loans are generally easy to obtain and do not require any complex processes. Borrowers can approach financial institutions, banks, and credit unions with their loan requirements and avail quick disbursal benefits. 
  2. Borrowers can contact the lenders directly and avoid working with any middlemen or intermediaries. This can save borrowers from paying any additional expenses and unwanted fees.
  3. Retail mortgage loans are more flexible as compared to wholesale mortgage loans. Borrowers can choose from a range of payment options and tenure based on their convenience and needs. 
  4. Retail mortgage loans help borrowers improve their credit scores and creditworthiness. Taking a retail loan is a practical way for consumers to grow their appetite for future credit loans. 

Disadvantages of Retail Mortgage Loans

Retail mortgage loans also come with their share of disadvantages such as - higher interest rates as compared to wholesale mortgage loans. 

Additionally, retail mortgage loans might hurt your credit score if you fail to fulfill the timely repayments.