For prospective home buyers, there is a lot to learn about the ever-changing housing market. While looking at listings for properties in a number of different markets, whether Toronto, Ottawa or Guelph homes for sale, it is vital to take a step back and consider the financial side of the home search. While it may be a given that you will need a mortgage, whether you get one directly from a bank, or go through a mortgage broker, is up to you.
Here’s what borrowers should know about working with mortgage brokers.
What is a Mortgage Broker?
Mortgage brokers are licensed professionals who specialize in connecting consumers with mortgage products. They may work with numerous financial institutions and have access to a variety of special rates and promotions at each – this can go a long way in finding either the lowest or most flexible mortgage rate. While a bank can provide you only with their in-house rates, a mortgage broker is able to shop around for a number of different options, depending on the borrower’s needs.
They will also negotiate with these lenders on the borrower’s behalf – if you approached a bank directly for your mortgage, it would be solely up to you to see if they’ll give you a better rate.
How Are Mortgage Brokers Paid?
It’s important for borrowers to understand how mortgage brokers are compensated – mainly, they earn a commission from the lenders they work with. The borrower never needs to pay a broker – they typically earn fees from lenders based on the kind of product they sell, which is paid to them at the time of the sale.
Another option for mortgage brokers’ commission, which is less common, is what is known as a trailer fee. This is a lender-broker payment system that gives the broker commission not only at the time of the sale but every year after throughout the length of the mortgage.
Understanding brokers’ incentives for working with specific lenders is important for borrowers in the case they feel they’re being pushed harder for certain products over others. However, brokers, in general, are more impartial than working with a single financial institution as they have a number of different options when it comes to the lenders and the rates they have to offer.
What are the Benefits of Using a Mortgage Broker?
Mortgage brokers are helpful when managing the mortgage process, as shopping around for different lending products, as well as handling the paperwork, can be daunting.
They are also quite knowledgeable and can answer any questions and provide educated advice at any point during the mortgage process, including after you have already chosen your mortgage. For example, they can offer guidance as to the best term, amortization length, and type of mortgage product that will best suit your borrowing needs.
As well, working with a mortgage broker can be particularly beneficial if you’re in a more challenging borrowing situation and may have difficulty qualifying for a traditional mortgage. Their experience in the industry will help you navigate your options in this case, and find home financing that works for your situation.
How Do I Find a Broker?
If you are looking to find a broker, a great place to start is by getting referrals from people that you know. However, don’t just take their word for – you should feel comfortable with the way the broker manages the overall process. Be sure to do some online research and don’t be afraid to ask your broker some challenging questions, like inquiring about how successful they have been with other clients in similar financial situations.
This “Working With a Mortgage Broker Checklist” from the Financial Services Commission of Ontario is also a great guide. Your broker is a resource for you, so it is important that you choose someone that you are able to build a strong professional relationship with.
Choosing to work with a broker has a number of benefits and drawbacks, which means it is up to you to determine the right fit. However, figuring out your financial picture will allow you to go right back to looking at listings for Edmonton, Alberta or London, Ontario real estate.
Zoocasa is a full-service brokerage that offers advanced online search tools to empower Canadians with the data and expertise they need to make more successful real estate decisions. View real estate listings at zoocasa.com or download our free iOS app.