Robert McLister·
General
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Mortgage Brokers Add Value

A new CIMBL survey quantifies the value that mortgage brokers add with several interesting statistics.  (see CIMBL Survey) 

Among the more interesting points:

  • Mortgage brokers, in part, have helped Canadians negotiate roughly 1.38% off typical posted bank rates in the last year.
  • The number of Canadians using mortgage brokers has jumped 24% since 2005.
  • Among those who renewed or refinanced over the past 12 months, 84% remain with the same lender, most likely a mistake given the intense competition out there.
  • 88% of Canadians say they are happy with their mortgage terms. 
  • The average Canadian interest rate in October was 5.05%, versus 4.62% in September 2005.
Robert McLister
Robert McLister
Robert McLister is one of Canada’s best-known mortgage experts, a mortgage columnist for The Globe and Mail, and Founder of mortgage broker intelliMortgage Inc., RateSpy.com, a website comparing Canada's best mortgage rates and Mortgage Editor of RATESDOTCA.

18 Comments

  1. Way to go! It is about time that someone starting talking about how much value mortgage brokers add. Thanks for sharing the truth rather than just sensationalizing like all the other media out there.

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  5. a licensed mortgage broker has a specific and essential job to do. their job is to effectively shop around the real estate financing market to find the buyer the best mortgage rate, at the best terms possible.
    usually a broker comes in before the home buyer actually goes looking for their dream home. buyers should first go to a broker for a mortgage pre-approval. most (if not all) financial lenders offer a mortgage pre-approval, and this document is normally free for prospective home buyers. this mortgage pre-approval is crucial to the home buyer as it tells them what they can actually afford and details the limits to which they can borrow from the financial institution.
    a mortgage broker is of added value in this situation as in the time it takes a home buyer to meet with one particular lending institution, the mortgage broker can contact a number of quality banks on the buyers’ behalf. a broker understands that different banks have different rules, and as they know the market; the mortgage broker in effect ‘goes shopping’ for you to find the best rate.
    even though using a mortgage broker is often free for the potential home buyer, their value and necessity should not be overlooked. a mortgage broker makes their commissions from the financial institutions where they secure; while there are no fiduciary responsibilities to the home buyer, a mortgage broker’s business is almost always based on referrals; it is important for a mortgage broker to act in the best interests of his or her clients. securing mortgages and positive client referrals are the backbone of a mortgage broker’s success.
    sam

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  6. Hello Mortgage Specialist,
    I don’t understand why people go the bank and get the banks to match our mortgage brokers rates. If you were valued as a bank customer, wouldn’t you have gotten the best rate from your bank the first time you called on them? For that reason I do not hand out my rates on paper until the deal is actually closed. It is just wrong.

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  7. Hello Mortgage customer. Another most important way that utilizing the services of an agent are as follows:
    1) most times, their services are no charge to the customer (there are special circumstances and exceptions to this point- but they are rare.)
    2) there is no obligation to use the research work that the agent has provided for the client– not until you are at your lawyers office signing your documents for closing.
    3) Agents give you leverage, security with RATES holds, and knowledge about the varied products and terms that are out there. Most institutional banks can only speak about their product offerings, nothing more……. Think about it… why would they tell you (their exisiting client) that they are not competitive in the whole market. AND they know where they rate against their competition. Truely!
    4) An agent will only pull your credit bureau ONCE– whereas you as the customer doing this inquiry with banks on your own, have a hit each time (usually costing your credit score 7-10 points each time). Effecitively impacting your rating…which will impact how the lender treats you, and what they are willing to RISK for you.
    5) and most important, its personal, direct one to one service, Agents tend to get to know your whole story, goals and future objectives. Agents build relationships with the client. And the trend is moving that clients will stay with their trusted AGENT.

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  8. I have used the services of a mortgage broker for the last 2 deals I got on my mortgage. Both were 5 year terms. The first was a closed variable in 2004 at prime minus 1. The second was a 5yr fixed in Aug 2009 at 3.64%. The way this was done was, I had the broker shop rates for 5 months prior to my renewal. Brokers can hold rates for 120 days. or 4 months. The rate available at the time I renewed was actually considerably higher than the rate the broker had secured several months prior.
    THAT IS THE POWER OF THE BROKER!!!!!!!!!!!!!
    An individual cannot hold rates. Therefore the window to close a deal is at the time of renewal. The really great thing about the hold, was that as rates dropped in the spring of this year, I benefitted from the hold. The way the hold works is that, if the rate drops I get the lower rate, if the rate rises, I get the lower held rate. For me it was win win.
    Educate yourself by asking a broker pointed questions about how their services can help you. Talk with a broker 6 months in advance of the renewal. Look at when the Bank of Canada is set to review the overnight rate and if your renewal is coming up, make sure the broker is shopping and holding rates prior to the rate anounements from the BoC. This will be especially critical in Spring of 2010 as the BoC is expected to raise prime in the 3rd quarter of next year.
    I am not in the financial industry anymore, but getting the best deal with flexible terms of repayment was important to me. At the time I could have had a variable at prime +0.50% or 2.75%. I am betting that interest rates will soar in the next 4 years and 7 months making my fixed term a super great deal.
    All thanks to my planning and utilization of the powers of a Mortgage Broker. As pay back, I have sent people to my broker to try to help the business.
    Ciao, G-man

    Reply

  9. Matt is a perfect example of people who do not understand bank does not care about him, while mortgage broker did all the research for him and he paid broker back with no business and rewarded bank who does not CARE about him, how unethical, I send people like him directly to the bank and not deal with them at all, they deserve bank’s attitude.

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  10. Sorry to burn the broker love fest, but my expereince with brokers has been unpleasant due to high pressure sales tactics. They seem designed to push me towards:
    1. Commiting to them RIGHT now.
    2. Lower interest loans that have higher early pay off fees and other not-so-obvious penalties.

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  11. I went to an ear doctor and he punctured my eardrum. That doesn’t mean all doctors are bad.
    You simply chose the wrong broker.

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  12. I am an ex broker, so I do have a valid point when I say mortgage brokers do have a place in the market place, but to say that brokers are always better than the banks lenders is simply wrong. I took the training and started doing mortgages with a basic understanding. it took me a long time to fully understand the different aspects of lending. where as a bank lender usually has to progress up to the ranks of mortgage lending and I walked off the street doing it. with the way that the mortgage broker industry is going with more lenders cutting Brokers off who don’t meet certain requirements, your average broker will not have the access to rates/ products that are available to the super-brokers. When I was a broker I always used the statement ” Your bank is not offering you the best rate”, but now how many brokers can say that they are offering the best rates when they are not on lenders preferred broker list? Plus the whole “I work for free” is another fallacy as no one works for free and paying a finders fee is another cost the consumer has to pay, it’s like saying that the home buyer hasn’t paid the realtor for finding his home, the cost is there in the price. The mortgage broker industry is obviously not doing that great a job if 84% of canadians in the last 12 months stayed with their lender, maybe it’s overstating its own value. I was once told by an high ranking executive for a national brokerage that the mortgage broker industry is only as big as the major banks what it to be. I’m positive my statement will have a lot of negative comments, but my opinions are based on my own experience

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  13. The solution is simple. If you want the best rates use a high volume broker.
    Consumers don’t pay any more to use a broker than a bank. The cost of origination is built into the mortgage in both cases and it’s roughly the same.
    Your statistic about retention is misleading. Lenders go out of their way to retain clients and bank representatives have just as much failure in switching homeowners from other banks. You also forgot to point out that this 84% number is actually improving. I think brokers are definitely having a positive effect in that sense.

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  14. Don they are not my statistics, they are from the CIMBL survey and are mentioned at the top of this post. So you advocate a two tiered broker system which has high volume brokers and then the rest? so basically you’d have posted broker rates and preferred broker rates isn’t that what brokers complain that banks do? High volume brokers get preferred rates through lenders they send volume to and are always at the mercy of being cut off due to decreased volume or poor closing ratios. One other thing that is miss leading is when a high volume broker will state that they deal with “X” amount of lenders when in fact they probably only deal with 3-4 so as not to lose the volume bonus and preferred rates. There should be far more disclosure with mortgage brokers than there currently is, why for instance don’t they disclose that they will send the mortgage to the preferred lender before sending it out to other lenders?

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  15. I think independent brokers who can’t submit through a centralized order desk are a dying breed. Large broker teams have more power to quote better rates. It’s a bad system but that’s how the lenders have made it by offering better rates in return for more volume. I agree with you that some brokers use only a handful of lenders and I don’t think that is good. Not all brokers do that however and having four main lenders to pick from is a lot better than trying to shoehorn a customer in just one product like the banks do.

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  16. I think centralized order desks and Broker Teams have come into existance (and thrive) in order to protect the quality of lender submissions. A number of Lender’s stated they were getting poor quality deals and poor closing ratios from low volume mtg brokers and didn’t want to deal with them any more… In order to address this ‘Quality’ problem, Lender’s have moved more of their resources towards supporting these so called Individual power houses & centralized underwriting. The only problem is (and I may be going out on a limb here) it that it has driven these same low volume mtg brokers underground and now Lender’s have no idea who they are actually getting their deals from and I suspect their ‘Quality’ problems have not improved significantly either! Any improvement Lender’s may be seeing is coming from the fact that we are becoming more professional and accountable to are partners (our Lender’s)
    I am fortunate that I work with a great group of people within our firm that allows me to access all these specials you refer to, and this way I service my clients in a way a single product broker/lending road rep. can not!

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  17. What you may not realize is the bank still put the screws to you. The Mortgage Broker gets paid for bringing business to the bank. Therefore the bank could have bettered the rate the broker could have gotten you. All you would have to figure out is how many basis points the bank pays the broker and that is your true leverage. If you need a mortage when you are done this term, negotiate with your present lending institution (if you must), by threatening to go to a broker. If they are complacent (and most banks are), leave and get the broker to do the leg work for you.
    I am not a broker, but have utilized one for my last 2 terms. My latest rate is 3.64% 5 yr fixed signed in July ’09, when variables were prime plus 0.5%. The broker gets a better deal than you and I can, even if we know what the broker can get you and where. The broker can hold rates for 120 days in advance of signing so you win if rates are volatile. The broker is a necessary evil. I say evil, not to besmirch the brokers, but evil because the banks are money grubbing devils who will automatically lie to you about what their “best rate” is for “favoured returning customers” because they want as much of your money as they can get.
    I say screw the bank and make them pay a broker to get my business. If the jerks won’t give me the best rate walking in the door, I am going to force them to pay the broker every time. The broker wins, the bank pays off some of their profit and I get an acceptable rate!!
    Mortgage broking arose as a job becasue someone saw the opportunity to shop around for a client. The banks eventually adopted the practice to deal with brokers because of the volume the broker can bring a lender as opposed to the lender enticing individuals. As a result there is an understanding between banks and the broker and the basis point pay off if the price the bank pays for the volume of dollars.
    My broker did $28,000,000.00 with one institution last year. Do you think that bank gives a hoot about your Mortage, unless you are in the $200-500K range, they don’t care.

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  18. “All you would have to figure out is how many basis points the bank pays the broker and that is your true leverage.”
    Not quite. If a bank doesn’t pay a broker then it must pay a bank rep. The bank rep might get paid half what a broker would make, but the pricing floor is often higher outside the broker channel. For example, at branch level they have to account for overhead. That extra cost is built into their internal pricing.
    You also have to understand the branch pricing mechanism. This is a simplifcation but essentially branches must meet a weighted average rate each month. This prevents them from giving the best rates to everyone. If you’re not lucky enough to get the right banker on the right day, you’ll be quoted an average rate at best.

    Reply

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