A major question for mortgage seekers is whether to use your bank or use a mortgage broker. Let’s see why we would use one over the other.
But, first, let’s learn about mortgage brokers.
What are Mortgage Brokers?
In Ontario, they are licensed by the Financial Services Commission of Ontario (FSCO) and in other provinces they have their own respective provincial legislation.
Mortgage Broker vs Mortgage Agent
You may have heard the term mortgage agent as well. The main difference between a mortgage broker and a mortgage agent is that the broker has to do a bit more training and can own a brokerage. They can also hire agents. You also have to be an agent for 2 years before you can become a broker.
I think this is also a good spot to talk about a Mortgage Specialist. Generally, this term is used by lenders (such as banks) to identify the salespeople who specialize in mortgages. They are not like a broker who needs licensing or shops around for the best rate for you from different lenders. A mortgage specialist will only sell their own firm’s mortgage products.
Why Should I Use a Mortgage Broker?
When you are looking for your next home to buy, many people think of the “Big Banks”. There are 5 of them in Canada, RBC, TD, BMO, CIBC, and BNS. Then there are smaller banks (smaller in Canada compared to the Big Banks) such as HSBC, credit unions, and foreign banks, and other specialized lenders. You could shop for weeks interviewing with many lending institutions, spend days researching their websites, and countless hours doing calculations.
Instead of spending that much time, you could also use a mortgage broker. A mortgage broker won’t cost you anything and they can generally get whatever posted rate you see and better. They can also explain all the conditions attached to a mortgage which can be critical depending on your situation. If it seems too easy to just check out the lowest mortgage rate from one of those mortgage rate websites, you’re correct in thinking that! A Financial Post article quoted the owner of a mortgage broker agency:
If you’re online trying to figure out what the rates are and why, good luck to you
Unless you don’t care about any conditions, renewal, ending your mortgage early, paying it off early, don’t plan to make extra payments, moving, and a host of other situations, then yes, finding the lowest rate may work for you, if you qualify. If you do care about some of these things, then a mortgage broker can help immensely.
Through their specialized software they can get all this information for you. They will also contact the lending institution if they need clarification.
Often times, they can find the mortgage loan that suits your situation as opposed to the lowest rate which is quite easy to find through a quick internet search.
This is important and this is where you can tell the difference between a “good” and “bad” mortgage broker. A good one will try and understand what you really need and take your situation into consideration when finding you a mortgage. A “bad” one will sell you the cheapest mortgage and couldn’t care less of the restrictions in the mortgage and let you suffer the consequences when you renew or attempt to purchase a new home and sell the current one.
I’ll go over some sales tactics to watch in a future article.
They deal with the ones their brokerage deals with and visa versa, meaning it’s possible some lenders will only deal with certain brokerages. This means, that if you see an amazing mortgage deal with some lending institution, they may not be able to get it for you. However, they may be able to match it with another lender. This is something you have to be careful with. If the broker isn’t good, they may try and move you to a lender they deal with, even if the deal isn’t as good.
On the other hand, the deal could be equivalent or even better. This is something you have to research on your own. You should make sure all the features of both deals are written down and shown to you so you can compare.
There is also the possibility that the mortgage broker has a volume discount from a particular lender and therefore wants to sell as much of their mortgage as possible to earn more revenue for themselves. They can do that by convincing you to switch to the lender that they have this deal from.
What Kind of People Use Mortgage Brokers?
Okay, I’ll list a few types and you can see if you fit in:
- First Time Home Buyers
- Repeat Home Buyers
- Self – Employed
- Property Investors
- Business Owners
- New to Canada
- Canadian Residents or Citizens
- Foreign Residents
Are you covered in here?
You get the point, anyone and everyone can use a mortgage broker when getting their mortgage. They’re an underutilized service in Canada that can save you time, money, and frustration when getting your first mortgage or when changing it.
Services of Mortgage Brokers
The main services all mortgage brokers offer can be categorized into these 4 services:
This is when you are looking to get a brand new mortgage. Mortgage brokers can do the shopping for you free of charge. Only in special circumstances will mortgage brokers charge you. And they should let you know ahead of time.
Renewals occur when your mortgage term expires. At this time, you can renew your mortgage with your existing lender, or use a mortgage broker again to find another mortgage. Your broker may or may not switch you depending on the circumstances.
In this situation, you already have a mortgage, but, you want to change it. A mortgage broker can help you with this task. It’s often accompanied by other debt issues you may have.
Home Equity Loans
Home equity loans involves taking money out of your home for your personal spending. There are a multitude of reasons why people do this. The benefit of taking out money this way vs other products such as credit cards is the low interest cost on this kind of a loan. It’s generally the lowest rate you’ll pay vs any other loan or credit card.
Many mortgage broker websites also add self-employed, investors, new to Canada and other types of people as “services”. I’ve categorized these as the types of people who may use mortgage brokers and I’ve listed them earlier in this guide.
A mortgage broker may specialize in certain people because their applications require extra documentation. I look at it like a doctor who specializes in babies (pediatrics), women (gynecology), or heart disease (cardiology), etc. Some brokers may do the same.
The only difference between doctors and mortgage brokers is that doctor specialists don’t see other patients whereas a mortgage broker that specializes in self-employed will generally take on other types of people who apply for mortgages.
How Do I Work with a Mortgage Broker?
A good mortgage broker will take the lead. They will ask you a lot of questions just the way a financial planner will. Like a financial planner, they need to assess your situation. You may think it’s just getting a mortgage, but, there can be other aspects they can help you with, which you didn’t know about.
Once you have discussed your situation and the mortgage broker has made his or her assessment, they can provide you with solutions to your needs.
Most of the time it will be a mortgage. And at some point, they will need all the information from you that is required by the lending institution.
The mortgage broker uses your information provided to find a mortgage loan that fits your needs.
After they have found one or more lending institutions with the financial product that you need, they will talk or sit down with you again to go over the products and select the lending institution with the right financial product.
After that has been decided, they will apply on your behalf. They may have to apply to one or more lenders if your application doesn’t meet their requirements. They will get a response from the lending institution(s) and relay that information back to you. At this point you will find out if you have been approved, declined, or if more information is required and another or updated application needs to be submitted. It’s important to note here that the mortgage broker does not actually lend any money. The lending institution they find lends the money to you.
When you are finally approved, it’s really a “pre-approval”. That means you have been screened to qualify for a mortgage loan with the lender. You don’t actually get the money yet. But, not all pre-approvals are the same. And a shoddy mortgage broker may say you’re pre-approved and not tell you there are some conditions.
Imagine that you use your pre-approval to purchase a house, not knowing all the conditions. Then when it’s time to actually get the money, your pre-approval doesn’t get approved because you didn’t meet all the conditions. How are you going to purchase the house now? You might have been pre-approved for $350,000 thinking that’s guaranteed money you’ll get from the lender.
It’s important to make sure that the pre-approval is guaranteed and find out how long the guarantee lasts and what conditions there are. What if you lose your job during the pre-approval period and then buy a house. Will you still get the mortgage loan? These are things you must consider when working with a lender or mortgage broker.
When you finally purchase your home, the mortgage broker will help you to ensure the deal closes by making sure the money from the lender is available for closing the deal.
Your lawyer will be the final person that confirms if the deal is completed. Although the person that should co-ordinate the whole process is your real estate agent, if you are using one. And of course, ultimately, it’s you who oversees this entire process. You may think it’s one of the agents you hired, but, think of them exactly as that: Someone you hired. You’re always ultimately responsible.
Note that if you work with the same broker a second time, you may not even have to meet with them in person. That happened with me for my 2nd home I bought. If you’re really confident with your agent because of referrals, reputation, or previous personal history with them, you may not even have to meet with them the first time.
How to Find a Mortgage Broker?
If you don’t know a mortgage broker, like in many other cases when looking for a professional, it’s generally a good idea to get a referral from someone you trust. Reading reviews is okay, but, I personally don’t look into reviews too much, unless you know the reviewer, which is often a website. You know the “fake news” that Trump keeps tweeting about? He’s got a really good point there. Seriously. There is so much fake reviews that I’m very hesitant of reviews. I would give examples, but, I didn’t keep track of them. But, now that I’m writing this article, I will keep note the next time I search for reviews on websites.
One thing to look for are high numbers of reviews with only 1 review. This is where someone may have done it themselves or hired someone to post reviews on their website. When you pay cheap prices, let’s say $5 for 20 or 50 reviews, you’ll get cheap service and what happens is that you get 20 reviews all on the same day and they all have only done 1 review. Maybe you get someone who is a little less sloppy and they spread the reviews over a month, but, each reviewer still only have 1 review. You can pay more and get a service where the reviewers have profiles with multiple reviews to make them look more real. Anyways, my point is that it’s actually easy to accomplish.
With mortgage brokers, you can cross check their name with the Financial Services Commission of Ontario (FCSO) to see if they have been “found guilty” of anything by the FSCO. I use the term found guilty, but, it’s not by a court, this is guilty by the FCSO and is actually termed, “enforcement activity”.
Here is the link:
Obviously, an easy way to search for a mortgage broker in your area is to use Google and search for terms such as:
- mortgage brokers toronto
- mortgage brokers pickering
The thing about using Google or any other search engine is that the people at the top of the list aren’t necessarily the best, which is a very subjective term to begin with. They probably just paid an SEO specialist to get their website to the top. But, that’s often the way we pick websites.
The ideal way is if we could pick professionals based on reviews. Unfortunately, it’s too easy to get fake reviews.
In the end, the fact is, it’s very difficult to pick good people. Fake reviews, false testimonials, fancy websites, copied content from other people, can make you and me think that a particular person is good. I even got a referral for a real estate agent and even that turned out bad! All you can do is as much research as you can from multiple reputable sources and hope for the best.
Some mortgage broker sites advertise rates that are really low. These are just “teaser” rates. They’re real, but, only under specific conditions. And the fact is, it’s no point just looking at the rates alone. A good broker will interview you and try and understand your situation to get you the best rate. Of course, a low rate is important, but, I don’t believe going for the lowest rate is a good idea either.
The fact is, any broker can probably match whatever advertised rate you find.
So, if any broker can get you the lowest rate, how do you pick the best mortgage broker?
You have to find someone who you can trust will actually do some work for you researching for the best rate. It’s not just about the lowest rate, it’s the lowest rate based on the conditions of the mortgage and your needs.
It’s someone who will also protect your very private and confidential information.
Many mortgage brokers are mobile. They will generally travel to where you live within their area.
Assuming you can find a mortgage broker you can work with, the next important factor for me is how they manage my personal information, particularly when travelling.
Let’s face it, you’re going to have to provide incredibly detailed and personal information that even family may not know about. You want to make sure that when they store your information, they’re not leaving it around on coffee tables in public spots or in their car when doing groceries.
Now, that’s a factor that hard to check and verify. So, you have to find someone who understands privacy and takes it seriously.
So, recommendations from family, friends, and co-workers is probably the best way. Then cross check them with the FCSO and other online sites.
I believe in education for this profession. I consider the ideal mortgage agent like a financial planner that specializes in debt. So, for the most part, I’ll be selecting agents with distinctive educational backgrounds in finance or that have good work experience or reputation in a separate page. I have included agents who are just licensed, but, may hardly be practicing. Personally, I wouldn’t want to use those agents. But, I’ll leave it up to you to decide. As I mentioned earlier, I’ll have a separate section that highlights agents with experience and unique background and value propositions.
Don’t be distracted by fancy websites. That’s easy to do, even though some don’t have it. Some mortgage agents may get enough referrals that they don’t bother with updating their websites. Maybe some have had bad experiences with web developers. I know I have with my first site. And I’ve dealt with other bad ones for other projects I started. Now I do it myself and may outsource portions of a website where I think it makes sense.
The educational background and experience is more important. And that’s why I highlight a mortgage agent’s education and experience in my directory.
When Do I Use My Bank?
You want to use your bank if you have a long relationship with them, a lot of assets, and a great credit score. Basically, you have to be “ideal”. Then, you’ll probably be able to get a rate lower than a mortgage broker could get you with your own bank.
I’ve talked about this and more about getting the best mortgage rate in another guide: How to Find the Best Mortgage Rate.
Mortgage Broker Designations
Accredited Mortgage Professional – AMP
Individuals with the AMP designation are members of Mortgage Professionals Canada, which was formerly the Canadian Association of Mortgage Professionals (CAAMP) until 2015. Prior to that, they were the Canadian Institute of Mortgage Brokers and Lenders (CIMBL). Membership is voluntary.
Obviously, if you see people with the CAAMP designation, they haven’t updated their profile in a while.
Mortgage Professionals Canada confers the designation of AMP, Accredited Mortgage Professional. What’s interesting about this designation is that it can apply to brokers and non-brokers.
The association was launched in 2004 and it is a national organization. The designation is also national.
Maintaining AMP requires the following:
- Yearly Continuing Educational (CE) requirements across 4 subject areas
- Experience requirements
- Annual Attestation
- Annual fee
If there is anything you feel should be added to this guide to improve it, feel free to comment below or send me a private email.