What is a mortgage broker?
When you’re ready to start shopping around for a mortgage in order to purchase an investment property, one of your options is to speak to a mortgage broker who will help you with this process.
A mortgage broker eats, sleeps, and breathes mortgages. The broker works with you and with the lenders. Their job is to come in between the borrowers and the lenders to help facilitate a deal, and they form relationships with lenders over time. The mortgage broker can maintain great relationships with both the lenders and borrowers in order to bring about advantageous for everyone.
As with any service, mortgage brokers come with a cost, however, they’ll be able to make up for that cost and save you money in the long run. A fair number of investors have enlisted brokers to secure their mortgages, and it’s common for brokers to find a great mortgage rate. It’s their job!
As a borrower, you don’t have to accept the mortgage deals that they curate for you, either. You’re free to continue to shop around, so it’s worthwhile to contact a mortgage broker to see what they’re able to do for you.
A mortgage broker’s job is to help you assess your needs, the type of mortgage that will suit those needs, your budget and what you can afford as it relates to what you’re hoping to get out of a condominium , and any other details along the way including payment terms and interest rates.
Mortgage brokers know all of the intricate details, and a good one will be able to explain all of the options and the differences between them to you in a way that makes perfect sense. They’ll be able to compare offers, tell you exactly what each choice will cost you in the long run, and connect you to a lender who meets all of your needs.
How much does a mortgage broker cost?
Mortgage brokers typically work on a percentage-based fee structure. You can expect to pay roughly 1-2%, and you may have room to negotiate this rate as well, depending on your unique situation. There shouldn’t be any hidden fees, or any extra costs tacked-on after the fact. The broker should itemize every cost and make them clear and upfront.
There was a time when it was possible that a less-ethical mortgage broker may have gotten kickbacks from lenders in exchange for directing borrowers towards them, which meant the broker would favour whichever lenders offered them the best incentives, regardless of which mortgages were best for the borrowers. Thanks to the Dodd-Frank Act, there are now regulations in place to prevent this from taking place.
Nowadays, there can still be unspoken incentives for a broker from a lender, but it’s more along the lines of forming a strong working relationship where the broker understands that they may be able to unlock better rates for future clients if they favour one lender over another. Under current laws, it’s illegal for them to accept actual, tangible bribes or incentives from lenders. Could it still happen? Sure, but it’s a big risk for a broker to take, and very unlikely nowadays. Furthermore, it’s a huge risk for the lender, too.
Mortgage brokers should not…
- Earn a commission based on the specific interest rate that for which you qualify. Their compensation is based on the total dollar amount of the mortgage, not the interest rate.
- Earn commissions or incentives for referring you to any related businesses.
- Charge any hidden fees to the borrower.
Is a mortgage broker worth it?
The answer to the question of whether or not a mortgage broker is worth it comes down to a case-by-case basis. Some mortgage brokers will be able to find you better rates and mortgage packages compared to others. Your bank could have a great offer for you that’s on par with what a broker could get, and then you would save the broker fee. In other cases, the broker will work their magic and you’ll come out ahead by working with them.
Generally speaking, if they aren’t charging you an upfront fee, it’s worth it to talk to a mortgage broker to see what they can get for you. If you don’t sign any contracts, you aren’t obligated to accept any offers that they curate for you.
With increased regulations surrounding the profession and professional standards, along with the training they receive, a mortgage broker can be a very helpful ally when it comes to navigating the confusing world of mortgages. The system isn’t really set up for a layman to navigate on their own, at least not without putting in a lot of work and effort, but a broker can help you with this.
What does a mortgage broker do?
A mortgage broker opens up the doors to seeing mortgage offers from a number of different lenders. If you walk into your main bank and tell them that you’re interested in taking out a mortgage, they will show you the mortgage products that they offer. They aren’t going to show you the products offered by other banks. As such, you’re limited to the options that this particular bank offers and without access to anything else.
This is where a broker comes into play. A mortgage broker works with a number of different lenders, from big banks to smaller credit units, and anywhere else that is offering up loans for people that are buying property.
You’re free to go from bank to bank, but you very likely only have any kind of history or relationship with one, or maybe two, banks. Your options are limited if you want to deal with a financial institution that you’re already familiar with, but a broker has access to a lot more.
Beyond that, a mortgage broker will also have access to wholesale rates, which could be better than the interest rates you would get on your own as a retail customer at a bank. Since banks want to woo the mortgage brokers into using them again and again for future mortgage brokering, it’s in their best interest to make a good deal for the broker.
The mortgage brokerage or the individual broker gets a small slice of the pie, the bank gets business they wouldn’t have otherwise had, and the borrower ideally ends up with a slightly better rate by comparing many lenders, even after covering the expense of the broker.
What are the pros and cons of hiring a mortgage broker?
Here’s what you can expect from a mortgage agent when you’re shopping for a licensed mortgage product.
Pros of hiring a mortgage broker
- Access to a wider range of mortgage products: A mortgage broker will have access to the offerings from many different lenders. Even with the same credit score, the same income, and the same needs, different lenders may have different tolerances for risk and therefore they may offer you better or worse rates, a larger mortgage, and so on. Brokers make it much easier to shop around, and you’ll just have to fill in your info one time and they’ll take it around to different lenders.
- They’ll do a lot of the work for you: Finding out your mortgage options, especially when you’re looking at offers from numerous lenders, can be a daunting task. A mortgage broker is there to assist you with this process. A great broker will be able to present you with something that suits your needs.
- You’ll get personalized recommendations: Maybe you’re never planning to make more than the regular payment throughout the life of your mortgage. Maybe you’re expecting to come into an inheritance in a few years. Either way, the correct mortgage for your unique situation will vary. Going over your financial goals, lifestyle, needs, and what you have planned for the future allows a mortgage broker to tailor your mortgage to your life.
Cons of using a mortgage broker
- Incentives that don’t favour you: If a mortgage broker has a long-standing relationship with certain lenders or poorer relationships with other lenders, that could have an impact on the suggestions and advice they have for you.
- Fees: There are costs/fees associated with using a mortgage broker. Ideally, these fees will be offset by the amount of money they’ll save you on your mortgage overall, however, it’s important to make sure you’re comparing apples to apples and looking at the terms of the loan beyond just the total amount and the interest rate.
- More trust is required: There are many, many honest and reliable mortgage brokers but there are, as with any group, a few bad-eggs. Adding another person into the mortgage equation means you have to trust an additional person throughout the process. You want to find somebody who brokers mortgage negotiations that you’ll be able to rely on.
How do I choose a mortgage broker in three steps?
Once you’ve decided that you want to find the best broker to help you choose a mortgage product, or at least to talk to some of them to see what they can do for you, it’s time to choose one. Here are some steps you can follow to make this process simple and in your favour.
Step 1: Initial mortgage brokerage research and meeting
One of the initial research steps you can take is to ask associates, friends, and family members that own real estate if they’ve use a broker. If they have, then ask if they were happy with the outcome. A good portion of investors use a mortgage broker to buy real estate, so this is a good place to start. You can also search online, read reviews, etc. However, that’s not the end of it.
After putting together a shortlist of brokers, it should be easy to find relevant information about them and their experience level as a broker for mortgage products, their credentials and licenses, and more.
You can reach out to brokers via email if you have any questions, and schedule a meeting to get to know them better. This is a major purchase, and scheduling an initial meeting will give you a sense of how they operate.
Step 2: Know the right questions to ask
Find out which lenders each prospective broker will be dealing with, and look into those lenders to make sure they all seem legitimate and credible. You may notice certain brokers have similar lists of lenders, whereas other brokers have additional access. It’s a fair question to approach a broker and ask why they work with a specific lender.
After meeting your broker and asking some questions, ask yourself how seriously they seem to take any concerns you have, and how well they are listening to your needs. A mortgage broker who is a good listener and pays close attention to detail, who has access to a variety of lenders and is willing to accommodate your needs as a consumer is a good sign. You must do your due diligence and make sure you’re totally comfortable before you reach an agreement. Then you can submit an application, find a financial services company to lend to you, wait for approval, and then see what’s available on the market.
Step 3: Be thorough and know what you’re getting into
A great broker will make absolutely sure that you understand the full terms of your mortgage and won’t seem like they are withholding anything, or seem like they have trouble answering certain questions. This is rare, as most brokers that you find who pass the initial steps will be perfectly capable and will make the experience a lot easier for you. Nonetheless, it’s not a good idea to just pass everything off to mortgage brokers without knowing exactly what you’re signing up for, what the various types of mortgages are, how your interest and principal will be paid back, how your rate may vary if you found a slightly more affordable or more expensive house, and so on.