Four key reasons why consumers use the services of a mortgage broker
Maroney on Money for August 29, 1999
It used to be that getting a mortgage entailed heading down to the local bank, checking out the posted loan rates, meeting with the bank’s loans officer and, after a fairly lengthy process, signing on the dotted line. Like so many other things, what once was is no longer.
Today, borrowers are increasingly inclined to turn to a mortgage broker to assist with their borrowing needs. In days gone by, mortgage brokers were often viewed as existing to serve the needs of high-risk borrowers, charging exorbitant fees in the process. Well, it’s goodbye to the old stereotype and hello to the new reality.
In Canada, roughly 20% of residential mortgages are currently placed through a mortgage broker – a number that is expected to increase significantly in years to come.
Now why would this be? This week I spoke with Gordon Hone of Armada Mortgage Services in Maple Ridge and he outlined four key reasons for consumers to consider using the services of a mortgage broker:
1. Independent representation – unlike the loans officer at XYZ bank, a mortgage broker does not work for any one financial institution. If you go to XYZ bank for a loan you’ll end up with an XYZ loan – don’t expect XYZ bank to sell you the loan offered over at ABC bank any more than you’d expect to buy a new Ford at a GM dealership. By going to a mortgage broker you can expect to get the best deal the marketplace has to offer because all of the lending institutions’ products are available to the broker.
2. Advice – a mortgage broker can help with a multitude of questions borrowers often ask: the length of the mortgage term, amortization period, the effect of changes in interest rates and frequency of payments for example. Brokers can provide clients with multiple mortgage pre-approvals and then help consumers with the selection process.
3. Experience – most mortgage brokers have years of experience in the financial and/or real estate industries. A mortgage broker can place millions of dollars of mortgages with different financial institutions in a single year unlike the average borrower who renews every five years or so.
4. Exposure – good brokers keep up-to-date on product offerings and they know what the market is offering. Today’s consumers are looking for choices in all their purchases and a mortgage is no different.
One key are of concern for consumers is the issue of broker compensation – how are these people being paid? Look under “mortgages” and you’ll notice the ads say “broker/lender fees may apply” or something to that effect. True enough, but Hone points out that most brokers don’t charge a fee for clients on standard business. Instead, brokers receive a referral fee from the bank, trust company or credit union the borrowers choose to deal with. The industry standard for mortgage broker compensation is approximately 0.5% of the total amount of the mortgage.
Why would a lender pay a broker a referral fee? Cost reduction is the reason, pure and simple. In the past, lenders would have a mortgage specialist on staff which, of course, entailed significant overhead beyond the employee’s salary. By using a broker, lenders can save time and money by having all of the deals that come their way pre-screened thereby streamlining the approval process.
So, if your mortgage is up for renewal or you’re looking for new financing, don’t discount using the services of a mortgage broker.
Jim Maroney is a chartered accountant with Andrews Brown Maroney in Maple Ridge.
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