For many, buying a home is a very exciting time! You are beginning to plan out the next chapter (or the next big step) in your future! It can also be a time though where your time is in short supply and perhaps you don’t have time to go from one lender to the next comparing rates. This is where a Mortgage Broker comes into save the day!
Mortgage Brokers have access to numerous lenders, rates, and a variety of different mortgage products. It’s like a one-stop-shop for your mortgage. They do the leg work and will compare, contrast and reach out to lenders on your behalf to get you the sharpest rate and the best mortgage product for you. Sounds fantastic right?
Now the big question we get asked as mortgage brokers ourselves: How do you get paid? As many of you may know, our services are free for you to use (in most conventional mortgage situations). This is because we are paid a referral fee from the lender.
Here’s a breakdown of how a mortgage broker makes money:
Let’s say you sign a mortgage with a mortgage broker. They have worked with you and have found you the perfect lender. When you sign on the dotted line and close on the mortgage, the mortgage broker would then be paid out a referral fee coming from the lender. There are cases in unconventional lending scenarios where there is an additional fee that the client is expected to pay out to the mortgage broker. These mortgages are most associated with private and alternate lending scenarios as these lenders typically do not pay a referral fee to the broker when the mortgage completes.
One of the follow-up questions we are asked is what’s the difference between working with a mortgage broker vs. a mortgage specialist at a bank?
The main difference is that mortgage brokers have access to MANY lenders (banks, credit unions, monoline lenders, alternate lenders, private lenders), whereas a mortgage specialist at a bank only has access to one lender (the bank they work for). This key difference also allows brokers to be objective, and to treat each client file differently based on their unique circumstances as a file may be declined by one lender and approved by another with the exact same file details. This is because each lender has different lending guidelines when reviewing a file and your file may NOT work with one lender BUT will work with another. A win-win for anyone who is house shopping!
A final question we are asked about is trailer fees. Essentially, what a trailer fee is, is that the broker collects a lower referral fee when the mortgage is signed and a much smaller referral fee from the lender every year for the life of the mortgage. The fear many consumers have with this is that they think brokers will pressure them into resigning with the same lender, even when it is not in their best interest. While it is true that certain lender’s do offer mortgage broker’s trailer fees, here at GLM we are committed to finding you the best rate and the best mortgage product each time you refinance. We do not believe in staying with the same lender unless it makes absolute sense for you.
As with any big decision, we always advise individuals to ask questions when you are interviewing potential mortgage brokers. Ask how they are compensated, how many files they do each year, how long they have been a broker for, what lenders they work with most and any other questions you may have. A home purchase is one of the biggest purchases you will make in your lifetime — it’s important to take the time to build your team wisely!