What is a mortgage broker?
A mortgage broker is a licensed professional who helps you connect with lenders and find the best mortgage offer based on your financial situation and goals. According to the 2021 CMHC Consumer Survey, 42% of Canadians arranged their mortgage through a mortgage broker and the top reason for doing so was to get a better rate.
Some of the specific tasks that mortgage brokers assist with are:
- Helps with your mortgage pre-approval and mortgage application
- Negotiate with lenders on your behalf to find the best mortgage rate and terms suited for your situation
- Access to more lenders and products, as well as provides a higher chance of getting a mortgage for complex scenarios
- Mortgage pre-approval and mortgage application
Mortgage brokers can be a useful service for those who don’t have the time to call around and comparison shop with multiple lenders. They can be particularly helpful to those who are first-time home buyers or new to Canada, and are unfamiliar with the mortgage application process. More complex deals such as a real estate investor owning multiple properties or someone who is self-employed is also best handled through a mortgage broker. Their job is to help you through your mortgage pre-approval process (which sets your strategy from the beginning) and submit your mortgage application to the right lender to help you close on your mortgage. They will convey details of your mortgage, like the terms, conditions, penalties and prepayment flexibility. Luckily with online mortgage brokers, the process is faster and easier than ever before, since the applications can all be done online.
- Low mortgage rates based on your financial situation
Based on your financial situation and goals, your mortgage broker can help you find the best mortgage rates available to you. With access to all lenders’ rates and requirements, digital mortgage brokers can help you save time by comparing the different mortgage rates between lenders and work with you to build a strategy that fits your unique situation, or where you can compare the latest mortgage rates yourself.
- Negotiate with lenders on your behalf
Mortgage brokers will compare mortgage rates from multiple lenders on your behalf and can ask lenders to match lower interest rate offers. You are more likely to get a better deal from certain lenders with a mortgage broker when they are the ones negotiating for you. That’s because they do large volumes with that lender and you benefit from the discounted pricing that broker gets access to. In addition to that, certain brokers will “buy down” the rate, meaning they cut their commission to get you an even lower rate.
- Access to more lenders and higher chance of getting a mortgage
With complex borrowing scenarios, you’ll have a better chance of obtaining a mortgage with a mortgage broker since they have access to more lenders, including alternative or private lenders who will only deal with brokers. Banks have a very specific list of things they look for when approving a mortgage and unfortunately a lot of Canadians don’t fit that profile. If you are in a special financial situation where banks will not provide you with a mortgage, the broker can work with private lenders to get your deal funded.
What is a mortgage brokerage?
Mortgage brokers are regulated differently depending on the province. In Ontario, a mortgage brokerage is a business that is licensed by the Financial Services Commission of Ontario (FSCO) that provides mortgage services, such as arranging mortgages for home buyers. A mortgage brokerage employs several mortgage brokers and agents who work directly with clients to help them find the best mortgage for their needs.
How are mortgage brokers different from real estate agents?
Although mortgage brokers and real estate agents are both licensed professionals in the real estate industry and often work together on a deal, their specific duties are very different. A real estate agent helps you buy or sell a property, while a mortgage broker will help you secure financing relating to the property you are buying or already own.
| Mortgage Brokers |
Realtors |
– Helps buyers and lenders connect
– Helps their clients find the financing for their property
– Advises on financing strategy |
– Helps buyers and sellers connect
– Helps their clients with submitting a purchase offer or with reviewing offers when selling
– Advises on bidding strategy or listing price |
What should I look for in a mortgage broker?
When looking for a mortgage broker in your area it’s important to do your research. You want to ensure that they are qualified and reliable. You should take a look at their website, social media and any online reviews that past clients may have left for them. It’s also important to make sure that they are licensed and listed, which you can do by finding out which credentials they hold and checking your province’s regulators website.
Confirm Canadian Mortgage Broker Licenses:
What are some questions to ask before deciding to work with a mortgage broker?
Deciding on a mortgage broker isn’t always as simple as you think. You want to ensure that you are both aligned on your goals and that they have your best interest in mind. Here are a few things to consider before deciding whether you should work with a mortgage broker:
- How are they with communicating?
You want to have a mortgage broker that you can communicate with effectively and will respond to your questions or concerns within a reasonable time. You also want to make sure you are aligned with the channels of communication and when you should expect responses by. The last thing you want is to be waiting around for a long time for them to respond and potentially miss out on opportunities.
- How quickly can they get things done?
The real estate market is fast paced where listings and offers happen 7 days a week, so every minute counts. You will want to know how quickly your mortgage broker can get things done so you don’t miss out on making an offer or getting your deal closed on time.
- Are they approachable and knowledgeable?
This is important as you want to ensure that your mortgage broker can effectively work with you and your realtor in order to get things done effectively. Especially for complex deals, you also want to make sure that your mortgage broker has the skills necessary to properly structure the right deal for you.
- Are they service oriented?
You want to feel like a top priority to your mortgage broker which can make a huge difference when it comes to working and communicating with them. You’ll feel more comfortable and at ease when your mortgage broker provides you with the support and care you want.
What are some questions to ask a mortgage broker before committing to a mortgage offer?
You should always ask plenty of questions to your mortgage broker before you commit to a mortgage offer. However, it is equally important that you are honest with your mortgage broker and answer all their questions truthfully, as the more they know about your financial situation, the better they can advise and assist.
Your mortgage is most likely going to be the biggest debt of your lifetime, so it’s crucial for you to understand exactly what mortgage you are signing up for. Some questions to ask your mortgage broker are:
- How do I get pre-approved for a mortgage?
Getting pre-approved is important and will help you understand your purchasing power and the maximum you can afford. This will also introduce you to all the steps involved in getting your mortgage approved as there are important factors that will come into play, such as your income, employment, credit score, down payment amount and more.
- How does the mortgage approval process work?
Mortgages take time to obtain so knowing the timeline and the necessary steps will help to avoid unexpected delays. With a trusted mortgage broker, they can help keep you informed and on track.
- Is a fixed or variable rate mortgage better?
The right option for you will be a mixture of personal preference and the current economic environment, since mortgage offers can change as often as each day and the value of each option can differ. When you open an account with Perch, our tools help break down the economic value of either option and you’ll also be able to consult your dedicated mortgage broker to come up with a strategy that’s right for you.
- Are there ways I can save on interest?
There are several ways you could potentially save on interest such as having a larger down payment if you can afford it, or choosing a mortgage offer with flexible prepayment terms. Shop around with your mortgage broker to see what other ways you can save.
- Are there any prepayment privileges or penalties?
You can find lenders with good prepayment privileges so you can pay off your mortgage faster, however, you should be aware of any penalties if you break your mortgage early. Your mortgage broker will be able to provide you with all of these details before you sign.
- What closing costs should I budget for?
Closing costs are often overlooked and forgotten about until the closing date. You will want to budget for land transfer taxes, home inspections, lawyer fees and more, so your closing can go smoothly.
- Are there limitations to breaking the mortgage?
Your mortgage broker will know whether there are any limitations of the mortgage, such as the ability to switch lenders or refinance during your term. Knowing this information can help you determine which mortgage terms to look for (or avoid), depending on what you will want to do in the future.
How do mortgage brokers get paid?
Mortgage brokers work for their clients rather than the bank or other lenders, which means it’s in their best interest to ensure you are always happy throughout the entire process. If a client funds a mortgage with that lender, they are paid a commission (also known as a finder’s fee) by the lender or mortgage provider.. Most mortgage brokers do not charge a service fee to the borrower, however it is best to clarify this before working with them.
What are the differences between going to a mortgage broker vs. a bank?
There are many differences between working with a mortgage broker or getting a loan from the bank directly. One huge difference between working with a bank and mortgage broker is that banks are only able to offer their own products, while a mortgage broker has access to multiple lenders and different mortgage rates. Here are some differences between working with a mortgage broker and a bank:
| Mortgage Broker |
Bank |
– Access to multiple mortgage products from a wide variety of lenders
– Possibly offer mortgage rates not available on the market
– Provide personalized, independent advice
– Will help you negotiate for a better rate
– Must be licensed and are required to take continuing education to upkeep their license |
– Allow you to consolidate your services and possibly offer discounts for bundling products
– Only have the ability to offer their own mortgage products
– May offer a discount on their posted mortgage rates, which you will be responsible for negotiating on your own
– Bank mortgage specialists are not required to be licensed |
Can a mortgage broker help me if I have bad credit?
Yes. Mortgage brokers have access to a variety of lenders, including private lenders who will look at the amount of equity you have in your home rather than your credit score. The Canada Mortgage and Housing Corporation (CMHC) requires a minimum of 680 credit score for insured mortgages.
A mortgage broker has the ability to work with multiple lenders, so they are able to seek out options for borrowers who may not have any credit or bad credit. The key is the mortgage brokers individual network of lenders and the knowledge that they are trustworthy, with an ability to fund the deal.
Typically borrowers who have poor credit can fit in with a number of alternative lenders who are willing to overlook the borrowers existing credit blemishes and will charge a higher rate to overlook it. This is also referred to as pricing to risk. If the borrower is attempting to purchase, they will also have to put down a larger downpayment on the new property to reduce the lenders risk. Additionally, if the borrower has a home with equity they can also pursue private lending which is meant to be a short term solution given the high rates associated with getting money from that source (you only make interest only payments generally with these types of lenders).
Do mortgage brokers work for the bank or financial lender?
No, brokers do not work for your bank or mortgage lender. They are an intermediary between borrowers and financial institutions, as brokers do not lend you money themselves. Brokers will work with the financial institution to help you find the best mortgage product based on your specific needs.
What are some of the reasons why I should work with a mortgage broker?
There are several reasons why working with a mortgage broker can be the better option. Here are a few reasons:
- Lower mortgage rate
Typically, mortgage brokers will offer you the discounted rate compared to the posted rate that banks provide. The posted rate is usually higher than the rate banks would actually offer and they usually expect you to negotiate your rate lower. Mortgage brokers work with a wide range of lenders and will be an unbiased negotiator for you, meaning they are more likely to get a better mortgage rate for you compared to if you went directly to the lender yourself.
Mortgage brokers or lenders give cashback as an incentive to do business with you instead of offering their clients a lower rate. If you’re short on funds, you may value the cashback more than someone who has savings and is looking to minimize their mortgage payment amount.
- Save time and money
Mortgage brokers will do all the research for you, negotiate for you and do their best to find the lowest rate for you that fits your specific financial situation. Many brokers are digital, so you can get your mortgage online, without ever having to leave your home.
- Unbiased advice
Your broker does not work for the bank or lender, meaning they don’t have a specific mortgage product that they need to sell you. They will give you unbiased advice and educate you with unfamiliar topics so you can get the best rate with a lender that works for you.
- No cost (exceptions apply)
Your mortgage broker gets paid through the lender when you finance a mortgage through them. Usually you will not have to pay to use a mortgage broker, however it’s best to check with your broker if they have any fees before starting with them. Using Perch has no hidden costs and is completely free to use.
What documents does a mortgage broker need?
When working with a mortgage broker in Canada, there are different documents they will need for your mortgage applications.
- Government identification
This can be your SIN number or a government issued ID that shows your current address
- Proof of income
Your proof of income will be needed so that they can prove to your mortgage lenders your monthly salary and ability to meet debt servicing ratios (how much of your income will go towards debt and other fixed payments). If your debt service ratio exceeds the allowed limit, it might be harder to qualify for a mortgage.Lenders will ask for recent pay stubs, T1 general tax form, notice of assessment, T4 or T4A tax forms or letter of employment. If you are self employed, you might be required to submit income documents for a more extended period of time (ex. The past three years). You might also need to show articles of incorporation or a business license.
- Basic financial information
Lenders will want a basic breakdown of your overall financial situation, mainly your credit score and credit history. Documents can include proof of your credit score, your mortgage pre-approval letter, bank statements, and a list of assets and investments.
- Proof of down payment
Lenders will want to make sure you have the funds for your down payment. You can use a statement of savings or investments, sale agreement of existing property, RRSP withdrawals (if you are a first time buyer) or a gift letter showing proof of a gifted down payment.
- Property details
Lenders will ask for the details of the property you are buying as well as the property you are selling. Lenders can ask for the final purchase and sale agreement as it provides details of date of purchase and final purchase price. You can also use the MLS listing as it provides the lender with an estimate of the property taxes, utility costs and condos fees if applicable. Other documents that the lender might ask for is the legal description of the home, homeowners insurance policy, lenders’ title insurance and if you are selling a home, they might ask for a recent mortgage statement and a legal description of the property you are selling.
Looking to buy a home, refinance or renew your mortgage? Connect with a Perch Mortgage Advisor today to discuss all of your options. You can also sign up for a free Perch profile and instantly compare hundreds of mortgage rates available to you, all with a few clicks.
Looking to buy a home, refinance or renew your mortgage? Connect with a Perch Mortgage Advisor today to discuss all of your options. You can also sign up for a free Perch profile and instantly compare hundreds of mortgage rates available to you, all with a few clicks.
