What To Look For In A Mortgage Broker
What to look for in a mortgage broker? If you’ve never had a mortgage before, or have traditionally turned to banks when you need a mortgage, you may never have come across a mortgage broker.
Mortgage brokers in Canada have unique relationships with lenders, including non-bank financial institutions, which can increase your chances of getting a mortgage that fits your budget, lifestyle and financial goals and saves you money.
What is a mortgage broker?
A mortgage broker is a licensed professional who acts as an intermediary between homebuyers who need financing and mortgage lenders who provide it.
Brokers do not lend money themselves and do not work directly for financial institutions. Instead, they assess your needs as a borrower and measure them against the mortgage products and interest rates offered by a range of lenders, from Canada’s largest banks to local private lenders.
Once they’ve found a few mortgage options that suit you, a broker will share the offers with you and help you choose the most suitable ones.
Getting the best deal on your mortgage is like finding the right credit card. Ideally, you should shop around and make some thoughtful comparisons before making a decision, but maybe you just don’t have the time, mental energy or confidence to do it yourself.
A mortgage broker will put these equations together for you, explain the differences between them, and help you understand how much each of them will cost you. After you have selected the loan offer that you are most comfortable with, your broker will help you submit your application to the appropriate lender.
What Does A Mortgage Broker Do Canada?
A mortgage broker not only sniffs out the cheapest interest rate for you. Brokers objectively look at your income, credit history and current credit environment to calculate how much mortgage you can afford. This can be invaluable for first-time buyers whose expectations don’t always match reality.
A good mortgage broker will act as your advocate when speaking to lenders who may have doubts about financing your mortgage. In these cases, brokers may urge a lender’s insurer to look at the numbers again or give them the full story of your overall financial stability that sometimes can’t be told in numbers.
A mortgage broker can also negotiate with lenders to offer you better terms and a lower interest rate. This isn’t always an option, but you’re welcome to ask.
The Difference Between Mortgage Brokers, Advisors, Specialists And Agents
There are several professionals with “mortgages” in their job titles. They can all help you get a mortgage in Canada, but not all serve the same role.
Mortgage Brokers And Mortgage Agents
Both mortgage brokers and mortgage agents compare the mortgage products and interest rates offered by multiple lenders to find a home loan that’s right for you. Your broker or agent will then submit your application to the lender you choose.
The main difference between brokers and agents is that brokers have earned an additional level of accreditation that allows them to manage agents and perform compliance-related responsibilities.
Mortgage Advisors and Mortgage Specialists
Mortgage advisors and mortgage specialists have a similar role, but instead of working with multiple financial institutions, they are in-house mortgage experts for banks and lenders. They will continue to help you find a suitable mortgage, but your choices will be limited to products offered by the institutions they serve.
For example, a mortgage advisor at RBC will not provide access to mortgages offered by another bank like CIBC or a mortgage finance company like MCAP. A broker, on the other hand, can have a relationship with all three institutions.
How Do Mortgage Brokers Get Paid?
Mortgage brokers generally work on a commission basis, which means they get paid after a borrower signs their mortgage agreement. In most cases, a broker’s commission fees are paid by the lender, not the borrower.
The broker’s commission is typically 0.5% to 1.2% of the total mortgage amount, but it depends on several variables, including the term and the type of mortgage you’ve agreed to. A mortgage broker will rarely charge a creditworthy borrower, but there may be a cancellation fee if you take out a mortgage after it has been approved.
For customers who don’t easily qualify for a mortgage—perhaps they can’t pass the mortgage stress test or have poor credit—mortgage brokers may charge a one-time fee that’s only paid after the mortgage is approved and completed. Brokerage fees paid by the borrower range from 0.5% to 2% of the mortgage amount.
This fee compensates the broker for the additional work that may be required to obtain approval for borrowers with more complex applications.
All brokerage fees must be stated upfront and in your contract, so ask and understand all fees before signing.
What To Look For In A Mortgage Broker In Canada, USA, Australia, And the United Kingdom
If you’re looking for a mortgage broker to help you finance your dream home, you’ve come to the right place. You are no longer solely dependent on your house bank. Here are some important things to consider when choosing a mortgage broker in Canada.
Make sure your mortgage broker is available
You want a mortgage broker who is available when you need them. The real estate market is moving at breakneck speed. If your mortgage broker isn’t available when you need them, you risk missing out on your dream home.
Ideally, you want an agent who responds quickly to emails, text messages, and phone calls. You want an agent who will get back to you immediately in an urgent situation, or within a few hours in less urgent situations. If your broker is taking days to get back to you, it may be time to start looking for a new mortgage broker.
One of the main benefits of working with an agent is that you don’t have to work 9 to 5 hours on a typical workday. However, not all brokers do this. Does it bother you if your broker is only available from Monday to Friday during regular business hours and is not there for you in the evenings and on weekends? If not, or if you’re worried you’re missing out urgently, you might want to look for a new broker.
Full-time vs. part-time mortgage broker
Being a mortgage broker is a full-time job. Would it surprise you to learn that there are several part-time mortgage brokers out there? That’s right, some brokers only do this part of the time. This can be problematic for several reasons.
First of all, your mortgage broker may not be available when you need him or her. For example, if you want to make an offer on a house and your real estate agent has her other job and is not available, what can you do? It could mean making critical mistakes or missing a home altogether.
Sometimes a realtor is also a mortgage broker. Again, this should be a red flag. Being a mortgage broker is a career that needs your full attention to be good. It’s hard if you only spend part of your time on it. Mortgage rates change, lenders offer promotions, and lender policies change all the time. If your broker doesn’t keep up, they could be missing out on something crucial.
Number Of Mortgage Lenders
A good mortgage broker has relationships with dozens of lenders. You want this. The more choices you have, the better. Some lenders are picky about the brokers they work with. If your broker is not registered to do business with them, you may be missing out.
You want a broker who has relationships with the big banks as well as credit unions and alternative lenders. This ensures that you can buy through your broker.
Find a mortgage broker you like
You want a mortgage broker who is right for you. You need to know a little bit about yourself and why you are buying the property. Let’s explain.
A good personal match can be the same communication style. For example, if you prefer to correspond via email while your broker prefers to speak over the phone, they may not be a good fit for you. It can also be a problem if you prefer to talk on the phone and your broker only makes himself available via email.
You also want a broker that you can identify with. Does it seem like they understand you? Do you understand your situation? If this is your first home purchase, you may want to work with a real estate agent who understands the challenges new home buyers face.
Speaking of which, some brokers target specific clients. This is similar to brokers. For example, some brokers prefer to work with first-time buyers in the housing market, while other brokers prefer to work with real estate investors. You want to work with a broker that suits you. Buying an investment property is very different from buying a primary residence. You want a mortgage broker who understands the policies of rental mortgage lenders so that you are well looked after.
Do people have good things to say about the broker?
Before looking for mortgage brokers online, you should check with your network to see if they know any good mortgage brokers. Word of mouth is one of the best ways to find a reputable mortgage broker. You can ask family, friends, neighbours and co-workers if they know any good mortgage advisors. While this doesn’t guarantee you’ll have a great experience, the fact that someone you trust will refer the agent to you means there’s a higher chance your experience will be enjoyable too.
If you’ve never worked with a mortgage broker before, it’s helpful to read customer reviews before deciding to work with one. Customer reviews give you a good idea of how satisfied or dissatisfied the broker’s customers are. While fake reviews can be posted, taking the time to read the reviews will give you an idea if this is a broker you would want to work with.
Does your mortgage broker have good references?
Not to be confused with reviews, references are the contact details of people who have worked with the mortgage broker. These can be customers, but they don’t have to be. They can also be lenders as well as other mortgage brokers.
If this is your first time working with a mortgage broker, you can request references. You can then go to the references and ask what it’s like working with the agent. As long as the references are legitimate, it can give you a good idea of what it will be like working with the mortgage broker.
Do you know the area where you want to shop?
You want a mortgage broker who understands the local real estate market. While your real estate agent’s job is to help you find a home, it can pay to have a real estate agent who knows the local market. When bidding on a property you want an agent who knows if the appraisal value is to be expected or if there may be a deficit.
Is the mortgage broker licensed?
You want a mortgage broker to do business in your country. This may seem obvious, but it would surprise you. You want to ask the broker for proof that they are registered to do business in your country and take the time to check with regulators.
Some of the questions to ask a prospective agent include:
- How long have you been working as a mortgage broker?
- What did you do before becoming a mortgage advisor? For example, someone who has just taken out a mortgage after selling a used car may not have the same level of expertise as someone who worked in a bank or brokerage before becoming a broker.
- What professional qualifications do they have? Are they up to date?
- What are examples of some challenging mortgage approvals you’ve been able to get?
- How many lenders do you work with? The higher the number, the more plan and product options they can check for you.
- What sets you apart from your competitors? If the answer is “lower prices” and a little more, perhaps you should look further.
Taking the time to meet with your prospective mortgage broker will also give you an idea of how knowledgeable they are and how they will treat you when working together.
Pros and cons of a mortgage broker
You’ll need to work with a mortgage professional to take out a home loan, but you don’t necessarily have to rely on the services of a mortgage broker.
Weighing the pros and cons of working with a mortgage broker versus a bank or direct lender can help you decide if this is the financing route you want to take.
Benefits of a Mortgage Broker
- Mortgage brokers offer a one-stop shop for both mortgage options and the kind of expert advice that can help you improve your finances and look more creditworthy in the eyes of lenders.
- Brokers are typically independent and have no obligation to recommend mortgage products from any particular financial institution.
- Because brokers have relationships with multiple lenders, they may be able to find you a lower interest rate and more flexible loan product.
- If you have good credit, you pay no fees.
- Many brokers specialize in helping borrowers in difficult financial situations obtain mortgages.
Disadvantages of mortgage brokers
- Brokers don’t have access to every single lender, and less experienced brokers may have fewer lender relationships than those who have been in the industry for a long time.
- Borrowers with more demanding applications may have to pay additional costs.
- Choosing between the many options a broker can offer can be overwhelming.
- If your broker needs to transfer your mortgage to multiple lenders, you may need to arrange additional documents and paperwork.
- When working with a broker, you may not be able to use a long-term relationship with a bank to your advantage.
How Mortgage Brokers Rip You Off
Although regulations in Canada are much stricter than they used to be when it comes to paying mortgage brokers and disclosing them to customers, there is still potential for abuse. Unfortunately, not all mortgage advisors can be trusted. Here are some of the top tactics and ways on how mortgage brokers rip you off:
- Driving up the cost of the mortgage: Mortgage brokers typically receive a commission from the lender for each mortgage they sell. This commission can be as high as 2.5% of the loan amount, giving them an incentive to pump up mortgage costs.
- Forcing you into a high-interest mortgage: Mortgage brokers can also receive a bonus from the lender for selling a high-yield mortgage. This can result in you paying thousands of dollars more in interest over the life of your loan.
- Ace and switch: Mortgage brokers can lure you in with a low-interest rate, but then switch to a higher interest rate once you’ve signed the contract.
- Imposition of a prepayment penalty: If you want to pay off your mortgage early, the mortgage broker may ask for a prepayment penalty. This can amount to thousands of dollars.
- Non-Disclosure of Broker’s Financial Interests: Mortgage brokers are required to disclose potential conflicts of interest, but they do not always do so. For example, if the mortgage broker also receives a commission from the lender for the sale of a line of credit, they are not allowed to share this with you.
If you’re considering hiring a mortgage advisor, it’s important to be aware of these potential pitfalls. Do your research, ask lots of questions, and read the fine print.
How to avoid being scammed by a mortgage broker?
While there are many ways a consumer can be scammed into borrowing, one of the most common and costly offenders is mortgage brokers.
Fortunately, there are many ways consumers can protect themselves from mortgage brokerage fraud. Here are a few tips that will help you avoid dishonest brokers and find one you can trust:
- Make sure everything is in writing, including interest, fees, and other terms of the deal.
- Beware of brokers who charge large upfront fees. Legitimate brokers will not charge you until they find you a loan.
- Always request at least three quotes before settling with a broker.
- If in doubt, get a second opinion.
- Choose a broker that is licensed by the relevant provincial and territorial authorities. For example, BC residents can contact the British Columbian Financial Services Authority (BCFSA), while Ontario residents can contact the Financial Services Regulatory Authority of Ontario (FSRA).
- Ask the agent for a list of mortgages they have taken out in the past and contact these homeowners to ask about their experiences. Check online reviews (Google, Trustpilot and Feefo).
Final Thoughts On What To Look For In A Mortgage Broker In Canada
While the majority of Canadians choose to work with a bank when taking out a mortgage, there is an increasing trend for Canadians to turn to mortgage brokers to help them obtain the best mortgage product for their needs.
There are many benefits of using a mortgage broker in Canada. A good broker will have access to a wide range of products from different lenders that can help you find the best mortgage rates and terms. They can also help you deal with the complicated paperwork and bureaucracy that comes with getting a mortgage.
While there are also disadvantages to using a mortgage broker in Canada such as the fact that they often charge a fee for their services, the disadvantages can be mitigated with careful research. If you are looking for the best mortgage rates and products available in Canada, it pays to work with a mortgage broker.