What Is a Mortgage Broker and How Are They Paid?
In Canada, about 30% of mortgage seekers will use a mortgage broker for their home financing needs, while more than 90% of Americans trust their brokers to find them the best mortgage for their families. The low percentage of Canadians using mortgage brokers can be attributed to the fact that an open mortgage industry in Canada is relatively new.
Up until the late 1960’s, the Canadian mortgage market was controlled by insurance companies since banks were not permitted to lend. In the 1970’s, banks began to take over the market providing standard mortgage products, especially 25 year amortizations with 5 year fixed rate terms.
Why the Need for a Mortgage Broker Back Then?
When banks took a firm grip on the Canadian mortgage market, mortgage brokers were of little use to the average consumer. The big banks offered rates which no other lenders could compete with and there was a lack of convenience. Despite having no chance to compete with the banks, mortgage brokers saw an opportunity to help consumers who had been rejected to secure a mortgage at a higher rate with a private lender for a service fee.
Mortgage Brokers Are More Valuable Now Than Ever!
Today, mortgage brokers and agents across Canada offer the consumer an opportunity to save thousands of dollars over the course of their mortgage term and will not cost the consumer a cent! Despite the huge changes which have taken place in the mortgage industry over the past few decades, the majority of Canadians are unaware of the advantages offered by mortgage brokers and often are not aware of what the job description of mortgage broker actually entails.
How Can a Mortgage Broker Offer a Better Rate Than My Bank?
Unlike the mortgage market which existed back in the 1970’s, there are 95 mortgage lenders in Canada as I write this post and they are all competing to lend their money to the consumer. Big banks, on the other hand, still hold over 70% of all Canadian mortgages and as a result, only worry about competing with themselves. When 95 mortgage lenders are competing for 30% of the mortgage lending market while 5 big banks are competing for the other 70%, you can begin to understand how a mortgage agent can find you the best rate.
How Does a Mortgage Broker Get Paid?
Mortgage brokers and agents are paid a commission of the total mortgage amount by the lender, not the consumer. This is another reason why secondary lenders can offer lower rates through brokers and agents, since they only pay when a mortgage deal is closed. On the other hand, a big bank pays their financial planners, many of which may not be mortgage specialists, a salary regardless of how many mortgages they close each year. The big banks pass on this extra cost to the consumer through a higher interest rate.
But My Bank Promised Me The Best Rate
Another important fact to note is that mortgage agents can also arrange mortgages through the big banks. Why do you not see mortgage agents arranging mortgages through the big banks very often? They typically cannot compete with the rates offered by the many secondary lenders. Why stick with your big bank “hoping” that they will offer you the best rate available, when you know you will get the best rate with your mortgage broker?
Will One Mortgage Broker Get a Better Rate Than Another?
Although it is possible, most mortgage brokers will be able to secure the same interest rate as any other broker in that same province. That being said, you want to ensure your agent is approachable and will always put your interests first. Most successful mortgage agents build their business off of loyalty and referrals.
How to Find a Great Mortgage Agent?
Ask your friends and family if they have someone they trust to handle their lending needs. Since such a large majority of Canadians are still using the big banks despite the drawbacks, you may be stuck to do some research on your own.
If you’re considering using a mortgage agent in Ontario, contact Home Mortgage Ontario via email, phone, or Twitter and I assure you that your loyalty will be earned.
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