Broker vs Bank

Broker vs Bank

So what do Mortgage Brokers do anyways?

Typically there are two ways to get a mortgage–through one of the major banks (RBC, CIBC, BMO, etc.), or through a licensed mortgage broker.

Simply put, a mortgage broker is an intermediary between the client and the bank/lender, whereby the mortgage broker submits the client’s mortgage application to the most suitable lender.  In most cases, this is the lender who offers the lowest rate.  Similar to that of how Ebay works, a mortgage broker basically connects sellers (lending institutions) with buyers (mortgage applicants), whose primary objective is to get the best deal.  In terms of mortgages, again, that boils down to the lowest interest rate.

Mortgage Brokers do not work for any of the banks or lenders; they are, rather, independent mortgage professionals who are licensed–or not, depending on which province they operate in–through mortgage brokerage firms that are regulated by each provincial and federal governing bodies.

How much to Mortgage Brokers Charge for their services?

Most mortgage brokers do not charge any fees for their services unless they are brokering a commercial mortgage (i.e. a mortgage for a commercial/retail building), or if the lender of choice is a private lender, a person or private lending company who lends their capital at a premium.  That premium, equates to a significantly higher interest rate.  These types of loans are mostly for sub-prime (bad credit) or high-risk borrowers.  Unfortunately high risk, usually means high interest rate for the borrower.

If you are traditional borrower with average to above average credit and are looking for a regular mortgage, your mortgage broker should not have to charge you any fees.  If they do, run!

How do Mortage Brokers get paid?

Because mortgage brokers are independent contractors, they work solely on commission.  Unlike Realtors, who are paid by commission from a percentage of the purchase price (or mortgage amount) of the property, mortgage brokers are paid separate from the purchase price, directly from the lender, by means of a finders fee and/or volume bonus.  Volume bonuses are based on the amount of business the brokerage generates for the lender.  Once the mortgage broker reaches a specific target with the lender, that is when volume bonus will be paid out for each mortgage funded.

Do Mortgage Brokers get better rates than long term customers from a bank?

Yes.  In most cases, a Mortgage Broker will beat the banks rates.  Why?  It’s simple: Mortgage Brokers account for approximately $50 billion of mortgages in Canada each year.  That is an astronomical amount of business that is contributed to the banking industry.  It is because of sheer volume of mortgage business that mortgage brokers are offered discounted rates from the banks/lenders.  It’s almost like shopping at Costo: shopping wholesale (like getting a mortgage with a mortgage broker), you shop at prices lower than retail (like getting a mortgage directly at your banking branch).

Mortgage brokers have access to over 40-50 different lending institutions.  These lenders, for the most part, include the 3 of the 5 major Canadian banks  (TD, Scotia, and CIBC), trust companies, credit unions, and private lenders.

Having all these different options available for a mortgage applicant automatically puts them in a better position to secure the right type of mortgage based on their own personal situation.

Why limit yourself to just your bank, when you can get better service, rates, and professional advise from a Mortgage Broker?

If you are traditional borrower with average to above average credit and are looking for a regular mortgage, your mortgage broker should not have to charge you any fees.  If they do, run!