Getting a mortgage can be a complicated process, once you start looking at all the available options – fixed rates versus variable rates, cash back, no frills, quick close specials, full-featured products – it can be difficult to know which product is best for you. That’s where a good mortgage broker can help. Especially when you’re a first-time home buyer, going to your bank for a mortgage may seem like the obvious choice. However, some benefits to working with a mortgage broker include:
- They offer their services for free.
- They work for you, not the lender.
- They have access to rates from many mortgage-specific lenders and major banks, enabling them to find the best product for you, versus you going to a single lender.
- They can help you with strategic financial planning if, for example, you want additional cash for home renovations or you have other debts you want to consolidate.
Are mortgage brokers actually free??
Mortgage brokers can offer their services to home buyers for free because they solely work on commission, paid out by the lender once they close a deal. Though, some brokers charge for special, difficult situations or when organizing for private lending. Therefore, be wary if a mortgage broker wants to charge you a flat fee for their services. That being said, the amount of commission they receive can impact the total cost of your mortgage.
Compensation from the lender is generally a percentage of the mortgage amount but also varies based on the mortgage rate and term length. There are also different ways for a broker to collect their commission, such as up front or over the term of the mortgage.
Understanding how much commission mortgage brokers make
There is no flat-rate commission across the board for mortgage brokers. There are multiple variables that affect how much they are paid out. For example:
- Fixed terms typically pay more commission then variable terms.
- The longer the fixed term, the more commission the mortgage broker may make (likely because the lender can predict their revenue stream for a longer period).
- Larger brokerages may receive additional bonuses because they produce a higher volume of deals.
- No-frills products (mortgages that are “stripped down” of certain features to provide a better rate) typically offer lower commissions.
How do mortgage brokers get better rates?
Brokers that do a lot of business, such as sourcing over $100 million in mortgages annually, typically get better deals from lenders due to the volume of clients they bring in. This is why some brokers can offer lower rates than others.
Additionally, if a lender comes across extra funds or if it’s in a bind and needs to hit quarter/annual targets, that lender may offer a lower-rate product to a large broker. This sometimes results in special offers and deals in the market that no else has access to.
All brokers don’t offer the same rates and products, though.
The fact of the matter is that interest rates are on the rise, and you need to be diligent in your research when looking for a mortgage before you lock in and waste your money. Particularly, those still hoping to move in 2019 may feel like they’re racing against the clock, as most forecasters, including our experts, predict two to three more rate hikes this year.
That’s why RateSupermarket.ca tries to provide the most comprehensive mortgage rate market comparison in Canada – we compare various brokers as well as the banks, credit unions and other lenders, increasing the likelihood of you getting a better deal.
This post has been updated.