With house prices hitting record highs in many parts of Canada, buyers are being forced to take out big mortgages. As a result, it makes sense to find the best possible interest rate in order to cut your interest costs over the duration of the mortgage. Mortgage brokers can help.
What is a mortgage broker?
A mortgage broker is a finance professional who helps homebuyers to find the best possible deals. The mortgage license requirements are completing a mortgage agent course approved by the provincial regulator and applying for a license. In Ontario, the Financial Services Regulatory Authority licenses mortgage brokers.
Mortgage brokers have a fiduciary duty to put the interests of the borrower first. Yes, they are paid a commission by the lender but they must present you with the best available deal.
What are the advantages of using a mortgage broker?
There are two key reasons to use a mortgage broker:
- Money: A broker can save you money by negotiating a lower rate with lenders. Even a reduction of a quarter of a percentage point can save you thousands of dollars over the lifetime of your mortgage. If you have a large mortgage, you will save even more.
- Time: It can be very time-consuming to negotiate with different lenders in order to find out which one offers the best interest rate and terms. A mortgage broker will contact a number of lenders to get a good deal for you.
Why use a mortgage broker instead of a bank?
A bank has lending officers who will provide you information about mortgage rates at only one financial institution – their own. On the other hand, a mortgage broker can reach out to several different banks and credit unions to find the best possible rates.
In addition, there are a number of independent mortgage companies that a mortgage broker can tap for a quote. You may have never heard of these firms, but they may offer you the best rate.
With the advent of online banking, many customers rarely visit a branch, except perhaps to use the ATM. As a result, they may not have a relationship with a bank lending officer. The bank staff may not be familiar with your financial situation and mortgage needs.
Mortgage brokers can usually help with borrowers who have special circumstances. Your credit rating may be less than perfect. Or you are self-employed and your income is not always steady. If this is the case, mortgage brokers can seek out lending institutions that offer flexible payment plans.
In addition, mortgage brokers can provide you with advice about how to pay off your mortgage sooner. For example, if you can eliminate your mortgage in 20 years instead of 25, you can save a lot of money in interest payments.
How do mortgage brokers get paid?
Brokers are paid a commission once the mortgage is finalized and you receive the funds. This means that it’s in their best interest to work hard to close the deal and keep you happy. If the mortgage does not go through, they get paid nothing.
The commission varies depending on the lender. It typically is between 0.5 and 1.2 percent of the full mortgage amount.
How do I arrange a mortgage through a broker?
Whether you are working with a broker or a bank, the process is quite similar. Both can help you get pre-approved for a mortgage to enable you to make your home purchase. With today’s fast-moving real estate market, it’s essential to have pre-approval so that you can make an offer to purchase a home without a lot of conditions.
When you hire a broker, they will contact various lenders for the best possible rates. It is important to recognize that rates posted on a bank’s website are just a starting point. If you have a reasonably good credit rating and a solid income, your broker will negotiate a lower rate with the lending institution. As indicated, even a slightly lower percentage rate can save you thousands of dollars over the period of the mortgage.
The mortgage broker will take care of all the paperwork for the mortgage. This can be extensive and having someone to hold your hand through the process can be reassuring.
How do I find a mortgage broker?
Ask friends and family if they have used a broker before and, if so, whom would they recommend. Ideally, the broker should live in your community because they will be familiar with the local real estate market. However, this is not required – brokers work with people over the phone and online. Therefore, they could be located anywhere in your province.
If your friends and family haven’t used a broker before, talk to your real estate agent. They will often have brokers with whom they work and can recommend one. When you talk to prospective brokers, ask for references. Call them and ask detailed questions about the service provided.
What if there is a problem with my mortgage broker?
If you have a concern about the service provided, you should contact the brokerage that employs the mortgage broker. If you are still unable to resolve the issue, you can file a formal complaint with the provincial regulatory body. In Ontario, this is the Financial Services Regulatory Authority.
The Mortgage Brokers Regulators’ Council of Canada has recently published a code of conduct, which brokers must follow.
A mortgage broker can help you
A broker will guide you through the complicated process of getting a mortgage. Often, they can get a better rate than your bank offers. Be sure to hire a broker with whom you are comfortable and who has excellent references.
