Why should you use a Mortgage Broker?
According to a recent CMHC survey, 80% of first-time buyers plan to consult with a mortgage broker. Buying a home is typically the biggest financial commitment you will make in your life and you need to feel confident in your decision. Mortgage Brokers are a valuable resource to help Canadians get access to a variety of traditional lenders and innovative lenders. Many lenders have chosen to save millions in overhead costs and instead offer their mortgages exclusively through brokers.
Mortgage Brokers are provincially licensed and regulated and are expected to meet high ethical standards.
Mortgage Brokers can get you mortgage terms that are not available through traditional banks and credit unions, but sometimes a traditional lender will run a marketing campaign with a very low rate that is beyond the reach of a Mortgage Broker. Just keep in mind that mortgages have some critical product features other than rate, and that lenders advertise low rates as part of a marketing campaign. The advertised rate may not be available to you and the lender may not consistently provide low rates.
To illustrate the complexity of mortgage products, we counted 25 different rates for a 5 year closed term with a single lender. That is why Mortgage Sandbox recommends that you work with a mortgage broker.
Major benefits of Using a Mortgage Broker:
They tend to have more experience and depth of knowledge than branch staff because they only do mortgage lending. Typically Bank staff are generalists who need to learn thousands of products so it's difficult for them to be good at everything.
New mortgage brokers are paired with a mentor for their first two years so what they lack in experience they have in hands-on support.
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 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 they send the deal. If you were to do it yourself, you would end up having your credit bureau requested by each lender. Each time your bureau is requested it pulls down your credit score!
They are mobile and can work with your schedule. Rather than you 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.
Sandbox 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 chose your mortgage broker?
Most brokers will want to work with you, but you want to find the broker that is your best match. e believe that you should look for these key qualities in an broker:
They are ethical and share your values.
They have a work style that that is agreeable to you.
They are local to the area where you currently reside.
They are busy enough to have a good feel for market conditions, yet not so busy that they don’t pay attention to your individual needs.
They work 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. Most brokers can affiliate with any brand they choose; 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. In reality it's your individual broker who is knowledgeable and trustworthy. The brands provide administrative, technological, and marketing support to a broker. The biggest difference between brands is how much the broker has to pay the brand for use of its logo.
CAUTION: A lot of people use a recommendation from their realtor. The mortgage broker may have greater loyalty to the realtor than to you; may advise you to take on an uncomfortably large mortgage to increase your home buying budget; 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 deal with a friend or family member that is a registered broker. A service provider from your circle of friends is more difficult to fire if your working relationship is not working out or could lead to an awkward family gathering...
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. With that said, we still feel more could be done to prevent unethical behaviour in the industry.
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 sold approximately 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 well while others don’t make much money at all. It’s unfair to try to compare commission incomes or small business incomes to salaries.
Mortgage brokers are professionals with their finger on the pulse when it comes to the many mortgage options on the ENTIRE market. By choosing to use a broker you’ll be guided through the borrowing and home buying process by experts, allowing you to more fully understand the process and make the financial decision best for YOU.
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1 CMHC Mortgage Consumer Survey 2018
3 2016 CMHC figures ar 153,000 mortgages annually and according to AMP 39% are obtained through mortgage brokers.