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.
