Mortgages are a complex product and once you start looking at all the available options including fixed vs variable rates, cash back, no frills, quick close specials, full-featured products, and the list goes on, it can be difficult to know which product is the best for you. That’s where a good mortgage broker can help. They can offer the following services:

• They work for you, not the lender
• They have access to many lenders including many major banks, specialty and mortgage-specific lenders, enabling them to find the best product for you, versus a single lender
• Can help with strategic financial planning – Are you going to want additional cash for home renovations? Are there other debts you can consolidate?
• Offer their services for free

The reason they can offer their services for free is that mortgage brokers are paid commission by the lenders once they close a deal, and work on 100% commission only (some charge for special, difficult situations or when organizing for private lending), but most only work on commission, so be wary if they want to charge you. The compensation is based on a percentage of the mortgage amount and varies for different mortgage rates, products, rate terms (i.e. a 1 year fixed versus a 10 year fixed), and even for different brokers. There are different options available on how broker’s can take their commission, such as up front or over the term of the mortgage, but we won’t get into that for now.

A few rules of thumb are:

• Fixed terms typically pay more commission then variable terms
• The longer the fixed term the more commission (ie. a 10 year fixed would pay more than a 1 year – which makes sense as the lender can predict their revenue stream for a longer period)
• Commissions can vary among brokers as larger ones receive additional bonuses based because of higher volumes
• No frills products which are “stripped down” with some features removed to provide a better rate typically offer lower commissions
• Speaking to many brokers they make an average of 0.75%
• A no frills, quick close product could offer 0.50%, while a full featured 5 year product could provide 1%

Brokers that do a lot of business, such as sourcing over $100M in mortgages annually (to put this in perspective CAAMP reports that there was $952B of residential mortgage credit outstanding October 2009), typically get better deals from lenders based on the volumes they provide and that’s how some can offer lower rates than other brokers. Additionally, if a lender has funds that become available or needs to hit their quarter/annual targets they can make a lower rate product available to a large broker and this sometimes results in special offers and deals in the market that no else has access to.

So all brokers don’t always offer the same rates or products and that’s why, as we try and provide the most comprehensive mortgage rate market comparison in Canada, we compare different brokers as well as the banks, credit unions and other lenders.

Surprisingly, mortgage broker market share is estimated at between 25-30% in Canada versus other markets such as the UK and US (before the economic collapse) where they are over 60%. Therefore there is a lot of growth available to brokers in Canada, and they offer a great service and we hope many more Canadians will consider talking to one before they take out their next mortgage. If your current bank or lender offers you a better deal, that’s great news. You can now sleep easy as you know that you’ve compared the market and increased the likelihood of getting a better deal after speaking to a broker.

Earlier this week a forward looking agency said that today’s well-informed shoppers will be on alert in 2010, and take advantage of the vast amount of information out there to make better buying decisions.

We hope this is the case for Canadian mortgage shoppers as well. Although, there is a vast amount of information on different mortgage rates, products, lenders and brokers, many Canadians are not taking advantage of them.

A CAAMP survey last year found that “when obtaining their mortgages, Canadians received an average of 1.94 mortgage quotes. Only 3% received more than 4 quotes”. This is truly an amazing statistic and the worst thing a mortgage shopper can do is simply sign and return the renewal form they receive in the mail from their current lender. Many times the renewal rate is simply the posted rate which can be up to 2% higher than the best mortgage rates available at the time.

If you’re looking to take out a mortgage, we recommend these 3 simple steps:

1. Do your homework

The Bank of Canada and Finance Minister have stressed recently that they are worried Canadians are taking on too much debt as a result of record low interest rates, including very low mortgage rates, and they have to start planning for upcoming inevitable rate increases.

Although the Bank of Canada said this week that they won’t increase rates to cool off any housing bubble, they are still looking to increase rates during the summer. As a result, if you’re looking for a mortgage now, make sure to plan in higher rate increases, many experts are saying 2-3% over the next few years, and see if you can still handle those payments. Understand what level of risk and repayments you’re willing to take on.

2. Compare mortgage rates

Taking into consideration of the renewal letter example above, its very easy to compare mortgage rates now, and get a quick grasp on what’s available in the market, that there’s no excuse!

3. Speak to a mortgage specialist

For any major decision, it is usually worth it, to speak to an expert. We understand that mortgage rates are not the only thing that matters when mortgage shopping, there are very important details such as the prepayment options, portability, penalties, etc that you also need to consider. However, mortgage rates are a good starting point and enable you to explore your options from there.

A good mortgage planner such as a broker will help you understand the various options, find the best product for your own personal situation and best of all there services are free, as lenders pay them commissions for funded deals.

Following these 3 easy steps will provide you with a great understanding of your own financial situation, what products are available in the market and an expert opinion to consider. You should be in a good position to then make an informed decision on your mortgage. If 2010 is the year of the well informed consumer, make sure you’re one of them.

You’ve been to the open houses, explored various neighbourhoods and perhaps even checked out local schools before settling on the home of your dreams. Now it’s time to negotiate your first mortgage, a process which done right, could save you tens of thousands of dollars.

Today’s low interest rates have made buying that first home easier but it can also breed complacency. Rates will rise eventually so purchasers need to not only find a place they can afford, but ensure that they have negotiated the best mortgage terms possible and educated themselves on the document they are about to sign.

When it comes to mortgages, the first lesson is that not all mortgage lenders are created equal. That become quickly apparent to Naysan and Nahid Hariri, both 28, who are mortgage shopping for a $438,000 home now being built for them in Richmond Hill, Ont. “I found that a couple of institutions were a number of (interest) points higher than others,” he said.

The Hariris also found that the big banks, which tend to have higher posted mortgage rates than smaller financial institutions, were reluctant to lower their rates. “My understanding with banks is that if you have services with them, they tend to work out something better for you.” Because first-timers typically have less money parked with a particular institution, they tend not to have the leverage to demand lower rates.

Read the rest of the article here.

The Real Estate Council of Alberta (RECA) recently recently commissioned Weaver Marketing Research (WMR) to conduct a focus group study in Calgary and Edmonton in June 2009 to learn more about how the mortgage brokerage industry is perceived by consumers, what consumer perceptions and expectations are before and after using a broker, and to what degree mortgage brokerages are complying with the RECA disclosure requirements contained in the Mortgage Broker Disclosure Document.

One focus group in each city was for participants who have used the services of a mortgage broker in the past 12 months, and the second focus group in each city was for participants who intend to use a mortgage broker in the next 12 months. Overall, the results of the research are positive news for Alberta’s mortgage brokerage industry.

For obvious reasons, the responses were different between the two groups as a direct result of one group having already used the services of a mortgage broker. Overall, the individuals who had used a mortgage broker had a positive experience. The group that had not yet used a mortgage broker was more reserved and not as informed as the other group, however they anticipated a positive experience.

In the summary of WMR’s report it states:

“consumer understanding of compensation and relationships in the mortgage brokerage industry varies considerably, depending on the prior real estate experience of the individual and also on their personal level of interest in being informed. Nevertheless, it appears that a majority of consumers go in to the transaction with a reasonably accurate but very high-level sense of what a broker will do for them. It further appears that some more detailed information about industry relationships and compensation is being disseminated to most consumers much of the time; however the format and comprehensiveness of the information is highly inconsistent.”

As each of the focus groups progressed and more information was provided to participants, such as the Mortgage Broker Disclosure Document, participants’ understanding increased and there was a general acceptance of a number of concepts.

The WMR report further states:

“After lengthy group discussion and review of the Mortgage Broker Disclosure document, new learnings evolved that demonstrated the close relationship of the broker to the lender. By the end of the groups therefore, these participants tended to shift more toward the idea that a mortgage broker acted as an intermediary between borrower and lender, all the while maintaining a responsibility to serve the interests of their client. The potential “conflict of interest” presented by this arrangement did not seem to trouble most respondents. They continued to believe they were receiving elevated customer service and obtaining better mortgage rates and terms than they would obtain independently.”

Focus group participants who have previously used the services of a mortgage broker indicated that they had a pre-existing sense of trust with a mortgage broker because in most cases another person of trust had referred them to the broker. While some participants initially focused on the best mortgage rates that the broker could arrange, it became apparent that it was not so much the rate as the overall terms and conditions of the mortgage that is of key importance.

Other findings of the focus groups indicate that:

The findings of the focus groups confirm that consumers have a positive view of the mortgage brokerage industry, that they perceive the broker as working in their best interest at all times, and that they have little concern for broker-lender relationships, types of compensation or regulatory safeguards. However, upon learning more about how brokerages work and the types of relationships brokers might have with clients and with lenders, focus group members became more interested in the information brokers are supposed to provide about potential relationships and compensation.

The final summary of the report comments:

“Group discussions provided some insights in to what consumers are looking for and are willing or interested to receive. It suggests that consumers who currently do not find industry disclosure information to be of value or relevance can be convinced to shift this view, with a bit of information pointing out what they now don’t know. It points to the value of better publicity and communication about the existence and function of RECA and the disclosure regulations, and suggests a mandatory, standardized multi-level approach for satisfying information needs of a broad spectrum of home-buyers.”

RateSupermarket.ca is pleased to announce that mortgage agent Cathy Roddy with the mortgage broker Dominion Lending Centres has made her services available and has listed her rates on RateSupermarket.ca.

Cathy and her team specialize in mortgages in the Kingston/Belleville area and you can find contact details of Cathy and her team as well as they’re latest mortgage rates here: Dominion Lending Centres Eastern Ontario.

Welcome on board to Cathy and her team.

After TD Canada Trust’s and Scotiabank’s Prime Rate decreases yesterday to 4.35% and 4.25% respectively, we saw the best Canadian variable mortgage rate on RateSupermarket.ca drop to 4.25% as well.

This great rate is on offer from the Canadian mortgage broker Dominion Lending Centres which you can view more details on here.

We’re pleased to announce that our latest mortgage broker, Dominion Lending Centre’s Cristina Piccirillo, has come on board and you can now find Dominion Lending Centre’s rates on RateSupermarket.ca.

This will broaden the mortgage rate search and comparison we offer and hopefully continue to help Canadians save money on their mortgages.

Kelvin

In a nutshell, a mortgage broker acts as the ‘go-between’ a mortgage borrower (you) and the lender (typically the big Canadian banks). Mortgage brokers act on your behalf offering their expertise and contacts for free, and receive their commission from the lenders only once a mortgage is arranged. There may be charges for their services if you have an exceptional situation, such as very poor credit, as they may need to spend more time on your application.

Mortgage broker’s are able to get the best rates for homebuyers and their rates are typically discounted when compared to the big bank’s posted rates because they arrange so much volume for the lenders (almost $50B last year). As a result, many times the banks and other lenders compete amongst themselves to offer the broker the best rate in order to secure their business. Many deal with over 65 lenders, and this is the reason why they can get the best rate for almost any person’s situation.

The residential mortgage market is extremely lucrative and competitive, as there were $191B worth of mortgages approved last year by 80+ lenders. As a result, mortgage brokers are becoming more popular as more people are turning to them to find the lowest mortgages, representing an estimated 25-30% of mortgages being arranged according to Jim Murphy, president of the Canadian Association of Accredited Mortgage Professionals (CAAMP).

Many people aren’t sure where brokers actually source the mortgages from. A recent report from Filogix, showed that mortgage brokers secured home loans through the following channels through their network in April 2008:

• Banks: 50.68%
• Mortgage Banks: 41.92%
• Sub Prime: 4.25%
• Credit Unions: 3.14%

The actual mortgage rate arranged by the broker, could be influenced by many factors, some of which are:

• What type of mortgage (open or closed) are you looking for?
• Is it a fixed rate mortgage or variable rate mortgage (adjustable rate mortgage ARM)
• Is this a single home mortgage loan?
• Or do second or third loans exist?
• How long do you want the mortgage amortized over?
• Is this is a refinanced mortgage?

As is the case with brokers in other industries such as insurance, mortgage brokers are generally former employees of the lenders such as banks. As a result, they know the ins and outs of the industry, who to contact and where to find the rates across Canada. If you’re looking for help arranging your next mortgage, a mortgage broker, may just be a sound option.

Kelvin Mangaroo is the founder of RateSupermarket.ca which enables Canadians to find mortgage brokers in Canada and compare mortgage rates.

I saw an interesting story on a side effect of the credit crunch yesterday. Despite the fact that the article is on the UK market, and the fact that the mortgage market in the UK is much worse shape then Canada, could it be a sign of things to come?

The article stated how some of the UK’s biggest lenders have withdrawn their best deals from the broker channel and are only offering them to customers going direct. The reason behind this is to try and create a bottleneck to slowdown demand for mortgages and control their uptake until the economy stabilizes. As a result, the UK mortgage broker market has seen a 15% decrease in its membership to approximately 26,000 brokers, and the number homebuyers using brokers has halved in the past year (Council of Mortgage Lenders).

The UK mortgage broker market is massive compared to Canada, as almost 3/4 of the £15 billion annual mortgage market are sold through brokers. The FSA has said it won’t step in to alleviate the situation, and a London broker was quoted as saying, “this dual-pricing is to the detriment of brokers but it also to the detriment of consumers, pushing them away from advice and leaving them in danger of not getting the right deal for their circumstances. Brokers have helped the mortgage market move on. No one wants to step back ten years.”

Indeed. Let’s hope the Canadian mortgage market never gets into these sorts of problems.