Probably the first thing that comes to your mind when looking for a mortgage is to walk into your local bank branch and ask to speak with someone who specializes in mortgages. This, obviously, is one of the right approaches, as we all rely on our own banks to provide us with the best rate and the best product, in the most professional, knowledgeable, and straight forward way.
Independent mortgage brokers and agents, on another hand, work for companies that specialize, for the most part, only in mortgages. In Ontario, independent mortgage brokerages are usually headed by a registered mortgage broker who typically has several agents working for him/her. These agents are usually known as mortgage professionals, advisors, specialists or consultants, although the general public is used to referring to all of them as mortgage brokers. These individuals are knowledgeable mortgage professionals, very often with experienced financial backgrounds.
Using a mortgage broker to obtain your mortgage has been a growing trend amongst Canadians in the last two decades. While in 1998 only 8% of all residential mortgages were obtained using mortgage brokers, the percentage of those who use mortgage brokers is close to 30% today. The driving force behind this trend is no doubt the benefits associated with using a mortgage broker for your mortgage needs. Here are some of them.
Access to the best rates and products
Mortgage brokers have a relationship with several financial institutions that are competing to get your mortgage business. These institutions continuously compete with rate, product and service promotions, hoping to win your business. Working with a mortgage broker will provide you with access to some of the best deals and most innovative mortgage products you can obtain on the mortgage market.
Obtaining the best interest rate is probably one of the most important reasons why consumers use mortgage brokers. Mortgage brokers shop the market for the best mortgage rate for you. They usually have the access to so-called “wholesale” mortgage rates, which are significantly lower than the posted rates offered by Banks to the general public through their branches. In most cases, your mortgage broker has the ability to find the best rate on the market and still place your mortgage with the lender or bank of your choice, which sometimes would not be the case if you walked into a branch and negotiated the rate yourself.
Obtaining the best mortgage product is another major reason why it is beneficial to use a broker. Each financial institution has its line of products and sometimes in order to find the mortgage product that meets your unique needs there is a need to check several banks. A mortgage broker is familiar with numerous products offered by financial institutions and will do the search for you.
Mortgage brokers have working relationships not only with major institution such as banks or credit unions (known as “A” lenders), but also with so-called “B”, “C” and private lenders. These institutions will very often overlook the standard conditions required by “A” lenders, especially for individuals with troubled credit history, those who cannot provide standard income confirmation, or have inadequate down payments or similar.
Shopping for the best mortgage rate on your own could easily turn into a process that can negatively affect your credit score. Every time you submit an application for a mortgage approval or a pre-approval, your credit score drops. By doing this at several financial institutions you are running a risk of significantly affecting your credit score. Mortgage broker will check your credit history only once, and based on the information obtained will assess the quality of your application and send it to the lender that can offer you the best mortgage solution on the market. Your credit will be checked only once by the lender where your application is sent, as the mortgage broker inquiry of your credit history does not affect your credit score.
Mortgage brokers services are free to you
The services of mortgage brokers are usually paid for by the lending institution where the mortgage is placed through so-called “finder’s fee”. In other words, mortgage broker services are free to you. There are cases, however, where the institutions do not pay a finder’s fee to the broker, in which case the broker will charge the client directly, however this is typically not the case with “A” lenders, but rather “B”,”C” and private lenders.