The Benefits of a Mortgage Broker
According to a recent CMHC survey, “Most buyers contacted up to 3 lenders and 2 mortgage brokers for information or advice.” For most Canadians, buying a home is the most significant financial commitment you will make in your life. You should feel confident in the professional support you’re receiving. The same survey found that homebuyers, who used a mortgage broker, did so for:
Better interest rate (61% of buyers)
Faster turn-around-time (52% of buyers)
Better quality advice (50% of buyers)
Mortgage Brokers conveniently provide also provide access to dozens of traditional and innovative lenders.
Did you know that many lenders offer their mortgages exclusively through brokers? They do this to save the millions in security, rents, and overhead costs associated with a bank branch network, and this allows them to be much more competitive.
Canadian Mortgage Brokers are provincially licensed and regulated, and they need to meet high technical and ethical standards to maintain their licences.
Basic Broker Perks: They will help you hit your financial goals through their specialist insight and access to the full spectrum of mortgage products.
Mortgage Brokers can get you mortgage terms that are not available through traditional banks and credit unions. Sometimes a traditional lender will run a marketing campaign with a very low rate that is beyond the reach of a Mortgage Broker, but the rate is just one of many contractual terms in a mortgage agreement. Unfortunately dozens of factors can influence your rate so an advertised rate may not be available to you and, because of additional fees or potential penalties, it may not be advisable.
To illustrate the complexity of mortgage products, for a single lender, we counted 25 different rates for a 5-year closed term mortgage. That is why Mortgage Sandbox recommends that you work with a mortgage broker.
Key benefits of a Mortgage Broker:
They are often ex-bankers who have now specialized in mortgages, so they have more experience and depth of knowledge than branch staff because they only do mortgage lending. Typically Bank (or Credit Union) staff are generalists who need to learn how hundreds of products work so it's difficult for them to be good at everything. Their banking product knowledge might be a mile wide, but it’s an inch deep.
New mortgage brokers are paired with a mentor for their first two years so they have in hands-on support, while they learn the ins-and-outs of all the different lender’s approval criteria. Every lender is slightly different and some will lend you thousands of dollars more.
They will always offer you a competitive rate. All of the rates available to brokers are well below bank posted rates. Generally brokers look at the top 10 lenders, with favourable rates for your circumstances, to find the one with the best rate for you. Bank and credit union employees can only choose from their own offerings.
Your credit bureau is requested only once and then shared with any lender to whom the mortgage broker sends your application. If you were to do it yourself, you would end up having your credit bureau requested by every lender. Each time your credit bureau is requested by a lender, it pulls down your credit score!
Brokers are mobile and can work with your schedule. Rather than finding time to visit a bank or credit union branch during ‘banking hours’, a mortgage broker can meet wherever you like at a convenient time.
Suggestion: Even though mortgage brokers can choose from some of the top Canadian lenders, there are some lenders that have chosen not to offer mortgages through the broker channel. Presently, they are BMO Bank of Montreal, CIBC, HSBC, and RBC Royal Bank. Sometimes, but not often, one of these banks may have a promotional rate that cannot be matched by a mortgage broker. Keep in mind these advertised rates are often “rate bait” and the big banks generally charge significantly higher penalties if you break your mortgage early.
How should you choose your mortgage broker?
Most brokers will want to work with you, but you want to find the broker that is your best match. We believe that you should look for these key qualities in a broker:
They are ethical and share your values.
They have a work style that aligns well with how you work.
They are local and easy to meet for a face-to-face meeting, should one be necessary.
They are busy enough to have a good feel for market conditions, yet not so busy that they can’t give you their undivided attention if a complication arises.
They commit to working with you personally, and don’t hand you off to a member of their “team.”
You may be wondering about the firm they work under, and whether you should use a well-known brand. Brokers can affiliate with any brand they choose, and some switch offices on occasion to improve their commission split, but all brokers have access to the majority of lenders.
On the ethics front, if you review the published disciplinary actions by province, you will see that none of the big brands are untouched. The brand that matters most is the personal brand of the mortgage broker you’re working with and their knowledge and trustworthiness. The ‘brands’ provide administrative, technological, and some marketing support to a broker. The biggest difference between brands is how much the broker has to pay the brand for the use of its logo.
CAUTION: Realtor’s often recommend a mortgage broker. The mortgage broker recommended by the Realtor, may have greater loyalty to the Realtor who ‘funnels them lots of business’ than to you. As a result, they may have an incentive to encourage you to take on an uncomfortably large mortgage to increase your home buying budget. Or they may see something of concern in the property documentation and not alert you for fear of killing the deal and losing future referrals from the realtor.
CAUTION: Be careful if you choose to work with a friend or family member that is a registered mortgage broker.
A professional from your circle of friends is more difficult to fire if your working relationship is not working out. If you do part ways, it could lead to some awkward barbeques or family gatherings.
Values Matter
Some people are concerned that commissions and bonuses earned by brokers and bank employees can lead to unethical behaviour. There are rules against unethical behaviour and brokers can receive a written warning, a fine, or have their license revoked if they’re caught doing something unethical. More could be done to prevent unethical behaviour in the industry. Mortgage Broker oversight is fragmented across provinces and there has been significant controversy regarding the complexity and secrecy surrounding the Canadian Banking Complaints system.
Some people feel that brokers make too much money or the job is easy, but realistically very few brokers are getting rich. About 3,500 brokers in British Columbia complete roughly 60,000 mortgages in a year. That’s an average of 17 transactions per year which is below the threshold we calculated necessary to gross $60,000 in revenue. In truth some brokers are talented and do very well while others don’t make much money at all. It’s unfair to try to compare broker commission incomes to bank branch salaries.
Conclusion
Mortgage brokers are professionals with their finger on the pulse of the lending market. By choosing to use a broker you’ll be guided through the borrowing and home buying process by dedicated experts who will help you more fully understand the process so that you can make the best financial decision.
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