The process of purchasing a home is an experience roughly 75% of Canadians will go through in their lifetime according to the Mortgage Professionals Canada March 2020 report. Data has shown over the past few years that between 30-43% of consumers use mortgage brokers in their real estate transaction. There is an unbelievable amount of opportunity for Canadian to save by utilizing mortgage brokers based on that information.
The average home price in Canada sits around $475,000. With an interest rate of 3.25% the interest cost on a 30-year amortized mortgage will be $267,159. Interest brings the total cost of purchasing that home to $742,159. Yes, that is correct, mortgages are massively expensive. Banks are making from the interest, and rightfully so, they are taking the risk of lending and should be compensated. But, here is where we have an issue, why would homebuyers consult only their bank for mortgage options. Whose interest do the bank representatives serve? (excuse the pun) A mortgage broker looks after the interest of their clients and negotiates with banks on the homebuyer’s behalf. If the broker is able to save even 0.05%, that translates into savings of roughly $5,000 for homebuyers.
What is a mortgage broker?
A mortgage broker is a representative who serves homebuyers in finding mortgage products. Similar to a real estate agent in the sense that real-estate agent finds what housing is available on the market and helps negotiate the final sale price. A mortgage broker consults with a homebuyer on their financial circumstances and mortgage eligibility, then shops the market to find which lenders are offering the desired mortgage structure at the most competitive rate.
Mortgage brokers have access to many different forms of lending, whether it is small private lenders or one of the Big Five banks of Canada. Mortgage brokers are able to seek out what is available to homebuyers and provide them with the most competitive offers on the market.
Pros and Cons of a Mortgage Broker
Below we have outlined the positives and negatives of using a mortgage broker when purchasing a home.
|Mortgage Broker Pros||Mortgage Broker Cons|
|Easy of use: Brokers straight forward and can normally serve clients remotely without requiring a sit-down meeting||New Experience: You feel comfortable walking into your bank branch.|
|Experience: Broader experience base||Lender Access: Brokers may not have access to certain lenders|
|Competitive rates: Larger selection of mortgage options|
|Know where the mortgage stands: Compare the mortgage with the current market offering|
|Free: Brokers make a commission from the bank or lender. That means the lender pays the fee, not the homebuyer.|
|Serves the homebuyer: Brokers want recurring business and referrals. Good service will ensure their success|
Let’s go into some more detail on the pros for using a mortgage broker in Canada:
Pros of using a mortgage broker
- Easy: Mortgage Brokers want the serve homebuyers. They serve their client and accommodate the client’s needs. In today’s age of technology, much of the document exchange is done electronically, or if you are old-school, the broker is more than happy to have a sit-down and go over the process.
- Free: The homebuyer doesn’t pay a cent for the mortgage broker services. Mortgage products have built-in fees that compensate the broker
- Experience: Mortgage brokers do business with many different lenders while serving their pool of clients. This allows them to gain broader experience vs. the in-house mortgage representative at the banks
- Better rates: If a mortgage broker has recurring business with a lender they will receive volume discounts and be able to provide homebuyers with better rates
- Access to more lenders: Mortgage brokers have a breadth of lenders they can access and that allows them to shop the market and find the most competitive rate
- Independent: Mortgage brokers are responsible for building their own business and getting their own clients. They do not serve the banks or lenders and do not receive referrals from the lenders. Brokers will always serve the interest of their clients in order to gain recurring business and referrals.
Cons of using a mortgage broker
- New Experience: Everyone would feel more comfortable walking into their own bank and seeing the familiar faces.
- Lender Access: Brokers might not have access to all lenders, but it sure beats having only one lender like the bank representative