Why Use a Mortgage Broker?
You may be wondering whether to use a mortgage broker or go directly to a bank for your mortgage. While both options have their advantages, using a mortgage broker can provide you with a range of benefits that you may not be able to access on your own.
Key Takeaways
Mortgage brokers act as matchmakers between borrowers and lenders, providing access to a wider range of mortgage types and rates.
Using a mortgage broker can save you time and stress by getting you mortgage rates from multiple lenders with only one application.
Mortgage brokers provide you with expert advice and guidance throughout the home-buying journey.
Understanding Mortgage Brokers
A mortgage broker, sometimes called a mortgage agent, is a licensed professional who acts as an intermediary between you and lenders to find the best mortgage rates and terms for your financial situation.
Mortgage brokers typically don’t work directly with the bank or lender. Instead, they gather mortgage rates from multiple lenders and present you with different options.
When you work with a mortgage broker, they will typically:
Gather your financial information and credit report to determine your borrowing capacity
Shop around to different lenders to find the best mortgage rates and terms for you
Help you complete the mortgage application and submit it to the lender
Negotiate with the lender on your behalf to get the best deal possible
Provide ongoing support and advice throughout the mortgage process
One of the main benefits of working with a mortgage broker is that they have access to a wide range of lenders and loan products, including non-traditional options that may be a better fit for your financial situation. They can also help you navigate the complex mortgage process and provide valuable advice and support along the way.
Should I Use a Mortgage Broker?
Working with a mortgage broker can be a wise decision when looking for your mortgage. Around 31% of Canadians choose to work with a mortgage broker, because of the time savings and guidance they provide. In Alberta, that number is even higher, with 39% of people choosing a mortgage broker.
Mortgage brokers are especially beneficial for first-time home buyers and people who are unfamiliar with the home-buying process, like new Canadians. 42% of first-time home buyers rely on a mortgage broker to guide them through the mortgage process.
Surveys also show that people who choose mortgage brokers are generally more satisfied with their experience than people who go directly to a bank.
Between 2022 and 2023 the number of Canadians using a mortgage broker to obtain a mortgage increased by 23%.
Benefits of Using a Mortgage Broker
If you're in the market for a mortgage, you may be wondering whether to work with a mortgage broker or go directly to a lender. While going directly to a lender can be a viable option, working with a mortgage broker can offer several benefits. Here are some of the advantages of using a mortgage broker:
Access to Better Rates
One of the most significant benefits of working with a mortgage broker is that they have access to a wide range of lenders and mortgage products. This means that they can help you find a mortgage with a lower interest rate than you might be able to secure on your own. Mortgage brokers often have relationships with multiple lenders, which can help them negotiate better rates and terms on your behalf.
Less Time and Effort
Finding the right mortgage can be a time-consuming and stressful process. Working with a mortgage broker can save you time and effort by taking care of the research and paperwork for you.
Mortgage brokers can help you navigate the mortgage process and provide expert advice on the different products available.
Lower Credit Risk
Obtaining a mortgage involves a hard credit hit. When you go from lender to lender shopping for rates, each lender needs to pull your credit and evaluate your file to be able to provide accurate rate quotes. Multiple credit hits can decrease your credit score significantly and possibly make it impossible to obtain a mortgage.
A mortgage broker performs one hard credit hit and can send that credit bureau to multiple lenders over a 30 day period. As such, you benefit from multiple lenders quoting rates for your file but avoid the credit risks associated with multiple hits.
Customized Loan Options
Mortgage brokers can help you find a mortgage that is tailored to your specific needs. They can help you understand the different types of mortgages available and help you choose the one that is right for you. Whether you're a first-time homebuyer or a seasoned investor, a mortgage broker can help you find the right loan for your unique situation.
Potential Drawbacks of Using a Mortgage Broker
Keeping your eggs all in one basket
One potential drawback of using a mortgage broker is that you may end up dealing with multiple financial institutions. Your day-to-day banking might be with a lender that cannot be accessed by the mortgage broker channel, RBC for example.
If you choose to work with a mortgage broker and your deal lands at MCAP, you might be frustrated that you have to log into both RBC and MCAP to put together a financial summary. Some clients like to “keep all their eggs in one basket,” and using a mortgage broker could upset this system.
How Mortgage Brokers are Paid
When working with a mortgage broker, you may wonder how they are paid. Mortgage brokers are paid a commission by the lender once your mortgage funds. This commission is commonly referred to as a "finder's fee."
The amount of commission a mortgage broker receives can vary depending on the lender, but it typically ranges between 0.5% and 1.2% of your full mortgage amount. It's important to note that mortgage brokers generally do not charge the borrower directly, as they are paid by the lender.
One benefit of working with a mortgage broker is that they are motivated to find you the best mortgage rate and terms because they don’t get paid unless they find you a deal you want to move forward with. This means that they have an incentive to negotiate on your behalf and find you the best deal possible.
It's important to understand that some lenders may offer higher commission rates to mortgage brokers for selling certain products or packages. However, reputable mortgage brokers will disclose any potential conflicts of interest and ensure they act in your best interest.
Choosing the Right Mortgage Broker
When choosing a mortgage broker, it's important to do your research and find someone who is experienced, knowledgeable, and trustworthy. Here are some tips to help you choose the right mortgage broker for your needs:
Check their credentials: Make sure your mortgage broker is licensed and registered with the appropriate regulatory body in your province. You can also check if they are a member of a professional association such as the Alberta Mortgage Brokers Association (AMBA).
Ask for referrals: Talk to friends, family, and colleagues who have recently purchased a home and ask if they worked with a mortgage broker. If they had a positive experience, ask for the broker's contact information.
Read reviews: One of the best ways to find a good mortgage broker is to read their reviews. A good mortgage broker should have lots of positive online reviews.
Compare rates and fees: Mortgage brokers work on commission, so it's crucial to compare rates and fees from different brokers to ensure you're getting a fair deal. Make sure you understand how the broker is compensated and if there are any hidden fees.
Ask about their experience: Find out how long the broker has been in business and how many clients they have helped. Ask if they specialize in a particular type of mortgage or if they work with a variety of lenders.
Communication is key: Ensure the broker is responsive and easy to communicate with. You want someone who will keep you informed throughout the process and answer any questions you may have.
The mortgage brokers at Spire Mortgage are ready to show you why you should use a mortgage broker for your next mortgage. Fill out an application or contact Spire Mortgage to learn how a mortgage broker can improve your home-buying experience.
