If you’ve never had a mortgage, or have traditionally turned to banks when needing a home loan, it’s possible that you’ve never crossed paths with a mortgage broker.
Mortgage brokers in Canada have unique relationships with lenders, including non-bank financial institutions, that can improve your chances of scoring a mortgage that fits your budget, lifestyle and financial goals — and save you money.
What is a mortgage broker?
A mortgage broker is a licensed professional who acts as an intermediary between homebuyers in need of financing and mortgage lenders who provide that financing.
Brokers do not lend their own money or work directly for financial institutions. Instead, they assess your needs as a borrower and measure them against the mortgage products and interest rates on offer at a range of lenders, from Canada’s biggest banks to local private lenders.
Once they’ve found a few mortgage options that seem like a fit, a broker will share the offers with you and help you choose the best fit.
Getting the best deal on your mortgage is like finding the right credit card. Ideally, you want to shop around and do some thoughtful comparisons before making a decision, but you just might not have the time, mental energy or confidence to do it yourself.
A mortgage broker takes care of these comparisons for you, explains the differences between them and helps you understand how much each one will cost you. After choosing the loan offer you’re most comfortable with, your broker will then assist in getting your application submitted to the appropriate lender.
What else does a mortgage broker do?
A mortgage broker doesn’t just sniff out the lowest interest rate for you. Brokers will look objectively at your income, credit history and the current lending environment to calculate how much mortgage you can afford. This can be an invaluable resource for first-time home buyers, whose expectations may not always align with reality.
A good broker will act as your advocate when talking to lenders who may have doubts about funding your mortgage. In these cases, brokers might urge a lender’s underwriter to take another look at the numbers, or tell them the full story of your overall financial stability, which sometimes can’t be told in digits.
A mortgage broker may also negotiate with lenders to get you more suitable terms and a lower interest rate. This isn’t always a possibility, but it’s something you can feel comfortable asking them to do.
The difference between mortgage brokers, advisors, specialists and agents
There are several professionals with “mortgage” in their job title. They can all help you get a mortgage in Canada, but they don’t all perform the same role.
Mortgage brokers and mortgage agents
Both mortgage brokers and mortgage agents compare the mortgage products and interest rates offered by multiple lenders as a means of finding a home loan that works for you. Your broker or agent will then submit your application to the lender you choose to go with.
The primary difference between brokers and agents is that brokers have earned an extra level of accreditation, which allows them to manage agents and carry out compliance-related responsibilities.
Mortgage advisors and mortgage specialists
Mortgage advisors and mortgage specialists perform a similar job, but rather than working with multiple financial institutions, these are banks’ and mortgage lenders’ own in-house mortgage professionals. They’ll still assist you in finding a suitable mortgage, but the selection will be limited to products offered by the institutions they work for.
A mortgage advisor at RBC, for example, won’t provide access to mortgages offered by another bank, like CIBC, or at a mortgage finance company like MCAP. A broker, on the other hand, might have a relationship with all three institutions.
How do mortgage brokers get paid?
Mortgage brokers generally work on commission, meaning they get paid after a borrower signs their mortgage contract. In most cases, a broker’s commission fees are paid by the lender, rather than the borrower.
A broker’s commission is typically 0.5%-1.2% of the full mortgage amount, but it will depend on several variables, including the term and type of mortgage you agreed to. A mortgage broker will rarely charge a creditworthy borrower any fees, but there may be a cancellation fee if you back out of a mortgage after being approved.
For clients who don’t easily qualify for a mortgage — maybe they can’t pass the mortgage stress test or have low credit score — mortgage brokers may charge a one-time fee that is only paid once the mortgage is approved and closed. Borrower-paid mortgage broker fees range from 0.5% to 2% of the mortgage amount.
This fee compensates the broker for the extra work that may be required to get approval for borrowers with more complex applications.
All broker fees should be listed upfront and in your contract, so make sure you ask about — and understand — all the costs before signing.
How to choose a mortgage broker
There are approximately 30,000 licensed brokers agents and other mortgage professionals operating across the country, according to Mortgage Professionals Canada. Finding the right one requires a little due diligence.
Check a broker’s website for reviews, accreditation and any awards they may have won. Don’t stop there: check the reviews they’ve received elsewhere; they might be a little more objective than a prominently-placed on-site testimonial.
Reach out to friends and family who recently purchased homes of their own to get their recommendations, too. A good broker is worth sharing.
When you think you have found a broker you’d like to work with, set up a meeting or call so you can ask a few questions and get a sense of whether or not they’re a good fit for your situation.
Questions to ask a potential broker include:
- How long have they been working as a mortgage broker?
- What did they do before becoming a mortgage broker? Someone who just moved into mortgages after selling used cars, for example, may not have the same expertise as someone who worked at a bank or real estate brokerage prior to becoming a broker.
- What professional credentials do they have? Are they up to date?
- What are examples of some challenging mortgage approvals they were able to secure?
- How many lenders do they work with? The higher the number, the more rate and product options they’ll be able to evaluate for you.
- What separates them from their competitors? If the answer is “lower rates” and little else, you may want to keep looking.
Taking the time to meet your potential mortgage broker will also give you an idea of how informed they are and how they will treat you if you work together.
Advantages and disadvantages of using a mortgage broker
You’ll need to work with a mortgage professional of some kind if you want to secure a home loan, but you don’t necessarily have to enlist the services of a mortgage broker.
Weighing the advantages and disadvantages of working with a mortgage broker vs. the bank or a direct lender can help you decide if that’s the path to financing you’d like to embark on.
Mortgage broker advantages
- Mortgage brokers offer a one-stop-shop for both mortgage options and the kind of expert advice that can help you improve your finances and look more creditworthy in the eyes of lenders.
- Brokers are usually independent and aren’t obligated to recommend a particular financial institution’s mortgage products.
- Because brokers have relationships with a variety of lenders, they may be able to find you a lower interest rate and more flexible loan product.
- If you are creditworthy, you won’t pay any fees.
- Many brokers specialize in helping borrowers in more challenging financial situations get mortgages.
Mortgage broker disadvantages
- Brokers don’t have access to every single lender, and less experienced brokers may have fewer lender relationships than those who’ve been in the industry a long time.
- Borrowers with more challenging applications might have to pay an extra cost.
- Deciding between the many options a broker can offer may be overwhelming.
- If your broker has to shop your mortgage to multiple lenders, you may need to organize more documents and paperwork.
- You may not be able to use a long-standing relationship with a bank to your advantage if you work with a broker.