Mortgage Broker Basics
What is a broker?
A broker is a person that buys or sells assets on behalf of a client. There are many types of brokers: Mortgage Broker, Real Estate Broker, Stock Broker, etc. In this case, we want to learn about Mortgage Brokers.
Ok, so what is a Mortgage Broker?
A Mortgage Broker is a person that will help you find the best lender for your mortgage loan, at the interest rate most suitable for you.
Are they the same thing as a Mortgage Agent?
A Mortgage Broker and a Mortgage Agent are similar. The main difference is that a Mortgage Broker has more licensing and education in the field than a Mortgage Agent. A Mortgage Agent plays a similar role as a Mortgage Broker, trying to find you the right mortgage at a suitable rate and terms, but typically works for a brokerage. The broker, however, can open their own brokerage and bring on other Mortgage Agents if they so choose. Although they have different licencing, both are perfectly equipped to assist you in your mortgage needs.
What about Mortgage Specialists, are those the same?
No! Although Mortgage Specialists also specialize in mortgages, they typically work for a financial institution rather than for you. Meaning, the Mortgage Specialist at a particular institution is equipped to assess your eligibility and provide mortgages from their institution only.
So, does the broker lend me money?
Not exactly. Mortgage Brokers won't actually lend you the money, but they will help you find an institution that will.
Do I have to use a Mortgage Broker?
Great question! No, you are in no way obligated to use a Mortgage Broker. You can find lending institutions and communicate with Mortgage Specialists on your own for your mortgage needs.
Why would I use a Mortgage Broker?
Think of a Mortgage Broker as a personal shopping assistant who has expert knowledge on different stores and their products. They have the training and network to help you find the right product at the right price in an efficient, professional process. There are many advantages to using a broker:
- Expertise: Mortgage Brokers are specialized in the industry and hiring one for your transaction can save you significant time in finding a better deal.
- Exclusivity: Some lenders only do business through Mortgage Brokers, meaning they offer certain deals exclusively through a broker and not to individual buyers. This exclusivity may mean that using a Mortgage Broker provides you access to deals that would otherwise be unavailable to you.
- Paperwork:Finding a lender can involve a lot of paperwork and knowing what to look for. Gathering the right documents and understanding the requirements can be a challenge you may not want to face alone. A Mortgage Broker can facilitate this process for you by helping you compile and analyze the necessary documents.
- Variety:Since they're not representing a single financial institution, they are more likely to find you competitive rates.
- You-centered:One thing we tend to forget is that in addition to knowing the industry and lending institutions, the broker also knows you. They have taken the time to get to know your history, finances and goals, and are thus better suited to find the right lender for you.
Are Mortgage Brokers licensed?
Yes. Mortgage Brokers are licensed, although the type of license and the licencing requirements vary from one province/state to another.
Do I have to pay to use a Mortgage Broker?
Not always. The Mortgage Broker typically gets paid once the deal firms up (goes through). However, whether it's the client (you), or the lender that pays them depends on the agreement you sign with the broker.
The term, length and type of mortgage can also affect the broker's commission/fees. Some examples of Mortgage Broker fees are:
- Finder's fee: The broker may get paid a percentage of the mortgage you sign from the lender upon signing.
- Trailer fees: There are instances in which the broker may receive a lower commission upon signing but continue to receive a fixed amount annually, for the life of the mortgage.
Are there any downfalls to using a Mortgage Broker?
Sure. In any decision, it's important to assess what's right for you. Here are a few things to consider:
- Exclusivity: Just as Mortgage Brokers may have exclusive deals with some lenders, other lenders may choose to work exclusively with individuals. This means that there may be deals available to you as an individual that would not be available through a Mortgage Broker.
- Fees: Although some relationships with Mortgage Brokers may not require that you pay any fees, others may write fees into their agreements with you. It is important to know what you are required to pay upfront so that you make the best decision for your financial needs.
- Different Interests: It is possible that your interests do not align perfectly with your Mortgage Broker's. It's important to pay attention to the broker's fees and the way in which they will be paid to assess and foresee potential conflicts of interest.
Ultimately, whether or not you should use a Mortgage Broker is something that you will have to consider for yourself. While not a requirement by any means, it can certainly be an added convenience in the homebuying process, and that it always something worth considering!