Should you use a mortgage broker?
A mortgage is likely the most onerous burden you'll
ever carry. It's a loan of monstrous proportions, but for anyone
who isn't a rock star or Bill Gates, it's the only way you'll own
Clearly, the goal is to find the most competitive
interest rate on that whopping sum, but not everyone knows how to
go about it. According to stats culled by the Canada Mortgage and
Housing Corporation, more than 50 percent of Canadian homebuyers
accept the first rate their bank offers.
Not only does that mean most of them are settling
for the first quote, but that the majority aren't using a mortgage
A mortgage broker is a certified professional who
seeks the best mortgage terms for you by accessing a network of
lenders that includes major banks, trust companies, credit unions
and finance companies. (Brokers may also draw on local lenders that
aren't part of a network.) This stable of lenders provides brokers
with interest rates on a near-daily basis.
While she has relationships with the country's biggest
lenders, a mortgage broker is not beholden to any of them. A broker
is beholden only to you, the client. She will sift through her posted
rates to find you the best one.
Mortgage expertise can save you money
The most basic advantage of a mortgage broker
is that she saves you from approaching the various lending institutions
yourself, a laborious and sometimes undignified task. You fill out
an application stating your assets and earnings, and based on your
financial details, she will scout the market for the best mortgage.
What makes a certain mortgage company attractive isn't
necessarily the lowest rate. Say you want a mortgage of $250,000.
One lender might get you a competitive rate of 4.5 percent on a
five-year term, but may only be willing to give you $225,000. Many
first-time homebuyers will sacrifice the best rate for a company
that will lend them more money.
"You're trying to get a client the best rate
and you're trying to get them the best service, so whichever institution
fits those bills, that's what gets the deal," says Wayne McConnell,
president and owner of A+ Financial Services in Winnipeg.
Brokers are paid by lenders, not by you
Colin Dreyer, president of the Canadian Institute
of Mortgage Brokers and Lenders, says that years ago there was a
stigma attached to mortgage brokers. They dealt primarily with the
downtrodden and people whom the major banks deemed high credit risks,
or so the logic went.
The other misconception -- which still exists today
-- is that brokers exact an up-front fee from clients. Brokers do
not charge clients a fee, either before or after they've secured
them a mortgage. So how do brokers get paid?
They earn a commission from the lender. Commissions
are fairly standard, ranging from 0.5 percent to 1.25 percent of
the mortgage amount, depending on the length of the term. (A client
that locks in for five years will bring a higher commission than
one that opts for a variable rate.)
In the last decade, mortgage brokers have enjoyed
a tremendous surge in business. Ten years ago, Dreyer says brokers
comprised less than 10 percent of the mortgage market; today, they
occupy between 25 and 30 percent.
"There has been a real shift in how the consumer
looks at doing business," says Dreyer. "They're realizing
that [mortgage brokers] research the market for you, and they're
only going to get paid when they're successful in providing the
Brokers can be more flexible than banks
Two years ago, Jeff Piotrowski and his partner,
Rebecca, decided they'd had it with renting and wanted to graduate
to ownership. Figuring they could only manage the minimum down payment
on a home -- five percent for first-time buyers -- their first instinct
was to approach their own financial institution.
Unfortunately, their 20-year loyalty to the bank counted
for zilch -- their mortgage application was rejected. So they visited
a mortgage broker, who found another lender willing to provide the
sum they needed to purchase the home they coveted in Tottenham,
100 kilometres north of Toronto.
"The whole point of it was we just wanted to
put five percent down," says Piotrowski. "We just wanted
to get into a house, but the bank was saying, 'Look, you put more
down or we're not approving you,' and this other [lender] said,
'We'll approve you, sure, no problem.'"
It never hurts to shop around
While mortgage brokers have much to recommend
them, it's not given that they can arrange the best mortgage terms.
A broker can comb his lending network and extract what seems like
the best available rate, but as a client, you are not obligated
to accept it.
Many homebuyers take a broker's quote and submit it
to their own bank in the hopes they might beat it. They often do,
as was the case with Ottawa resident Julie McCann.
In the market for their first home, McCann and her
partner, David, met with a mortgage broker, who pre-approved them
for a significant sum and a competitive interest rate. When they
found their idyll in Ottawa's east end, the home's sale price was
significantly less than the amount they'd been approved for.
The house did, however, require some immediate upgrades,
which got them thinking that it would be advantageous to have a
line of credit in addition to the mortgage.
With the broker's pre-approved quote in hand, McCann
went back to her own financial institution to see if they could
outdo it. Not only did the bank trump the broker's best rate by
four basis points, but they were able to offer the young couple
competitive terms on a line of credit for their intended renovations.
"Our account manager kept pitching to us all
the weeks that we were looking for a house," says McCann. "She
beat [the mortgage broker's rate], and she got us a line of credit
at a great rate. So there was no competition -- we had to switch."
Even so, McCann doesn't question the usefulness of
engaging a mortgage broker. "For other people it may work out,"
she says. "For us, it didn't."
The biggest advantage to having a mortgage broker,
says Piotrowski, is the personalized service. With the bank, he
and Rebecca had to endure long, stressful and ultimately fruitless
meetings in a daunting institutional environment. The mortgage broker
put them more at ease.
"He came right to our house and he sat down with
us, told us our options and all that kind of stuff, and the next
day he called and said, 'Yeah, you're pre-approved for this amount
Andre Mayer is a freelance writer