Finding a mortgage can be stressful and shopping around trying to find the best rates can take a lot of time. But, it doesn’t need to be on your time. You can work with a mortgage broker who will do the job for you.
But what is a mortgage broker? What exactly do they do, and are they worth it?
A mortgage broker is a licensed mortgage specialist who acts as a mediator between you (the borrower) and the mortgage lender. They are legally required to work in your best interests, so you don’t normally need to worry about them prioritizing their fees over your needs.
A mortgage broker will shop around and do the work to help find you the lowest rate possible for your mortgage. Whereas a bank can only offer you their own products, a mortgage broker has connections with multiple lenders to provide you with more, and perhaps better, options. Mortgage brokers often get volume discounts which they can then pass onto you.
One of the first things that people worry about when it comes to mortgage brokers is how much they cost. After all, buying a home is already an expensive process. Well, the good news is that even though the mortgage broker does charge a fee, you aren’t necessarily the one who will pay.
Mortgage brokers get paid when they close a deal, so it is in their best interest to work with a client eligible for a large mortgage. To do this, a broker will assess whether not the bank would consider you a creditworthy client — someone in good financial standing who will likely be approved for the loan.
If you are a creditworthy client, you won’t have to pay the mortgage broker. Instead, how much a mortgage broker makes depends on the commission paid by the lender.
The amount of commission is typically between 0.5%-1.2% of your full mortgage amount, but it will depend on several variables, including the term and type of mortgage. A mortgage broker will rarely charge a creditworthy borrower any fees. After all, they want you to recommend them. However, they can charge you a cancellation fee if you back out of a mortgage after being approved.
Mortgage brokers don’t exclusively work with ideal borrowers.
For clients who don’t easily qualify for a mortgage because they can’t pass the mortgage stress test or have a poor credit score, mortgage brokers charge a one-time fee that is only paid once the mortgage is approved and closed. Mortgage broker fees range from 0.5% to 2%.
This fee is because clients who have a poor credit score or don’t easily qualify for a mortgage often require more work to get approved and have more complex applications.
All fees will be listed upfront and in your contract, so make sure you read and understand all the costs before signing.
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Mortgage brokers may or may not be required to be licensed, depending on your province or territory. Legally they are required to work in your favour, but that doesn’t mean that all mortgage brokers are equal.
Take the time to read reviews and check references online or talk to friends and family to get some recommendations. When you think you have found someone, you should take the time to meet with them in person and ask a few questions to get a sense of whether or not they are a good fit for you.
Some of the things you should ask include:
Taking the time to meet your potential mortgage broker will also give you an idea about how informed they are and how they will treat you if you work together. But don’t just rely on their expertise — you should go in prepared as well. Do some research on mortgage rates currently available to you so that you can compare.
Some people love working with a mortgage broker, while others don’t. It all depends on your needs as a borrower.
» MORE: How to negotiate a mortgage
Hannah Logan is a writer and blogger who specializes in personal finance and travel. You can follow her personal travel blog EatSleepBreatheTravel.com or find her on Instagram @hannahlogan21.