Shopping around for a mortgage loan on your own can be a daunting experience. For that reason, 30 percent of Canadians choose to work with a mortgage broker, according to a report by CBC.
This is no surprise, especially considering that a mortgage broker can do much of the legwork for you.
But working with a mortgage broker isn’t always the best move. Before you seek one out, here are 7 things you should know about mortgage brokers.
Mortgage brokers are effectively concierges that help you find the right mortgage for your needs. They can guide you through the entire mortgage process – from pre-approval all the way through closing.
This includes making sure all the paperwork is completed properly and sent to the lender, reviewing rates and terms, and even negotiating with lenders on your behalf. A broker will also act as a liaison for you during the closing process, which can often be complicated.
Working with a broker can be especially helpful if you’re a first-time homebuyer or otherwise don’t have much experience in the mortgage arena.
Not only can a broker save you time, but they can also explain confusing terms and help you understand which loan offer is best for you.
In addition to shopping around on your behalf, brokers will also make specific recommendations on how much you should consider borrowing and what type of loan you should get.
They will take the following factors into consideration when making recommendations to you:
More specifically, a broker can help you compare different offers from lenders and advise you on picking the right repayment term and interest rate structure. Your broker can also guide you toward the best offers.
Mortgage brokers work with a set group of lenders to provide you with rate quotes and offers. Unfortunately, that means that you might not get the best rate available.
This isn’t necessarily the broker’s fault. Some lenders don’t work with mortgage brokers at all, instead preferring to use their in-house team of loan officers.
That said, it’s important to shop around for a mortgage broker with a wide selection of lenders. Ask prospective brokers how large their pool of lenders is. Choosing a broker who works with a large selection of lenders will result in more rates being made available and will help set you up to get the best rate.
Mortgage brokers don’t work for lenders directly, and they typically get paid a salary. But on top of that, they also earn a commission from lenders when they complete the loan process.
That commission is typically between 0.75% and 1% of the loan amount. While you don’t directly pay that commission, it may still impact how a broker handles your situation.
This is mostly because the size of the commission can depend on a few things, including how big your loan is and what the repayment term is. Also, some lenders pay a higher commission than others, which can influence a broker’s final recommendation.
Of course, you can find brokers who don’t let their commissions determine their recommendations – as long as you remember that some brokers may be influenced by commissions.
The key to finding the right mortgage broker is to focus on how they interact with their other customers. In fact, just asking a broker if you can speak with one of their past clients can give you an idea of whether a broker is right for you.
If the broker hesitates, for instance, or says he doesn’t feel comfortable with the request, it might be because he doesn’t have many satisfied clients. But if he readily gives you a name and phone number, it may tell you the opposite.
If you choose to reach out to the broker’s reference, ask some of the following questions to get an idea of how well you might be treated:
As you do your due diligence with one or more references, you’ll get a better idea of what type of experience you’ll have with a broker.
Canadian law requires that all mortgage brokers have proper licensing, which requires both testing and experience. In Ontario, for instance, you must be a mortgage agent for at least 24 months before applying to become a mortgage broker.
This process ensures that mortgage brokers have a deep understanding of the mortgage industry and are qualified to give you the assistance you need.
The registration process also requires that brokers go through a criminal background check and fingerprinting to ensure that they have no criminal convictions.
So, as you’re shopping around for the right mortgage broker, ask about them about their licensing and experience.
We’ve already discussed shopping around for a broker, but how exactly do you do that? Start with asking your friends and family members who have purchased homes recently.
While it’s likely that most of them didn’t use a broker — remember, about 70% of Canadians don’t — you should be able to find someone who has.
Also, if you’re already working with a real estate agent, ask them for a recommendation. This is especially a good idea if you’ve vetted the agent and know you can trust him.
In addition to asking people you trust, look at some online loan reviews. There, you can typically find customer reviews and learn more about several brokers’ service and experience levels without needing to talk to each one individually.
That said, understand that websites are more or fewer advertisements. So, take your online findings with a pinch of salt and remember that it’s still important to call or meet a broker in person to get a full assessment.
Not all mortgage brokers are created equal. While working with one can be helpful in finding the right mortgage loan, some brokers can’t provide you with the same level of service and selection as others.
It’s essential that you take the time to find the right mortgage broker – even if it means setting up meet and greets with at least a few brokers before choosing the best one for you.
If you do your due diligence, you’ll not only have a better experience during the mortgage process, but you’ll also save money on your new loan.