Chris Vale (R) his wife Keli Hines and son Austin, 4 at their home in Oshawa.
When Chris Vale and his wife Keli Hines bought a home in Oshawa, they arranged a mortgage through an in-house firm their real estate agent’s company had.
“We were told, ‘Here’s the rate and here’s what you pay,’ ” Vale recalls of the transaction, which took place several years ago.
Then Vale met mortgage broker Marshall Spencer and got to learn what a broker could offer. When their mortgage came up for renewal three years ago, he and Hines used Marshall, who found a mortgage for them at two per cent lower than the posted bank rate.
Vale owns an Ajax web-design company.
“Marshall explained a lot of things to us, such as out clauses and penalties. It really set the path for finding the mortgage that was going to work for us,” says Vale. “When we had questions, we could pick up the phone and get answers from the same person every time. Having that personal one-on-one relationship was important.”
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Albert Collu, president of Independent Mortgage Brokers Association (IMBA) of Ontario and president and CEO of Argentum Mortgage and Finance Corp., says one of the biggest differences between a mortgage broker and a bank lender is the range of choice.
“Imagine going to the grocery store and down the cereal aisle all you see is one brand of cereal. When you walk into a bank, the bank is predominantly focused on moving its own products and a lending officer or branch employee can only offer one brand,” says Collu. “With a broker, it’s like you are going down the cereal aisle and a huge variety of different brands.”
Brokers deal with as many as 30 or 40 different lenders, including banks, credit unions, large institutions that only offer mortgages, and small, private lenders, says Collu. “That provides flexibility as different lenders have different appetites for certain loans. We are able to be more nimble than the bank.”
While some Canadians like to use mortgage brokers, there are advantages to dealing with your bank directly, according to the Canadian Bankers Association.
Many customers value the relationship that they have with their bank and often have other personal banking products and services there (such as chequing accounts, credit cards, and investments), as well as a mortgage, so this provides ease in managing all accounts and personal financial needs within one institution, says the CBA.
Banks also have a variety of resources such as mortgage specialists, booklets, calculators and comprehensive websites and many have staff who will meet the customer at home, according to the CBA. Consumers can also negotiate lower rates than the posted rate at banks and can choose from various payment options and mortgage solutions.
Collu says mortgage brokers are specialists who have in-depth knowledge about mortgages, while most bank employees may have limited or very general knowledge. Collu says IMBA advises consumers to call a broker for a consultation, before renewing a mortgage. There’s no charge and no obligation, he adds
“Most consumers don’t know what a mortgage broker does,” says Collu. “Thirty years ago, people would say, under their breath, that they had to go to a mortgage broker. It was almost an embarrassing thing to admit.”
The field has evolved since then, says Collu. Brokers must complete required courses, write exams, and be mentored and trained at an established brokerage.
Above all, they are required to be licensed with the Financial Services Commission of Ontario which can provide consumers with a list of licensed brokers and lists those that are not. It also handles consumer complaints. If your mortgage is for $300,000 or less, the mortgage brokerage cannot accept, or require you to make, an advance payment or deposit, for any expenses or services that will be offered by the brokerage or one of its employees.
There is usually no fee to use a mortgage broker.
“If only I had dime for every time someone has said, ‘Well, mortgage brokers charge fees,” says Collu. “Generally, that’s not true, and we are not conduits to loan sharks.
“How does a broker get paid? It works the same as an insurance agent: We are paid a commission by the institution we arrange a mortgage with.”
Collu says about eight out of every 10 people renew their mortgage with their bank, and, of those, about 70 per cent sign back at the posted rate, while a broker could get them a rate at 1 per cent to 1.5 per cent less, or even lower, and secure terms that suit their needs.
While anyone can use a mortgage broker, Collu says many clients are “credit-challenged people, looking for prime rates,” those requiring complex financing, people building a house or the self-employed, many of whom can find it difficult to qualify for a mortgage through a bank.
“I can save people time and time is the new currency,” says Spencer, who operates Prime Rates mortgage brokerage in Whitby. He started his career working in a bank. “A mortgage broker can shop the whole mortgage market so you don’t have to.”
Spencer says brokers “don’t have to push a particular product or cross-sell.
“I am not going to try to convince you to open a new savings account or buy mutual funds.”
A broker’s commission is not based on what the interest rate of the mortgage is, so they will try to get clients the lowest rate possible, he adds.
To determine the best mortgage for clients, mortgage brokers will typically ask them questions about where they want to be in five years, if they are planning to change jobs, whether their family will grow or if they need income from a rental unit in their house.
“A lot of people only see the interest rate and are distracted by that. When arranging a mortgage, don’t stop your questions there. Ask what privileges you have, if you can increase payments by an extra 10 per cent or 20 per cent or can make lump payments without penalty,” says Spencer.
Vale and Hines are pleased with their decision to use a brokerage, not a bank.
“For as long as we need a mortgage, we’ll be going the broker route,” says Vale.
Mortgage Broker facts
• The mortgage broker industry is governed by the Financial Services Commission of Ontario. It licenses mortgage brokers, agents, brokerages and administrators and its website has a wealth of information for consumers, including a list of licensed brokers, information about law governing mortgage brokers and how to file a complaint. There are also brochures on mortgage-related topics that can be downloaded.
• The Independent Mortgage Brokers Association of Ontario (IMBA) provides education and professional development for mortgage brokers and provides consumer information about brokers’ code of conduct, FAQs about the industry and a listing of licensed brokers in the province.