What is a mortgage broker?
When it comes to mortgages, borrowers need to oversee numerous details before getting approved and finding the best mortgage product whose terms and repayment plan fit their financial capabilities. The right mortgage saves money because clients do not have to pay excessive interest and the overall path to real estate ownership is shorter. This sounds pretty obvious, but countless mortgage offers are available from various lending institutions, including alternative online lenders. Usually, borrowers do not have the opportunity to spend all their free time searching for mortgage offers and checking details, or their information search takes too long, and they miss a good offer from a home seller. Imagine if there was someone who knew the mortgage market inside and out, was professional enough to give you unbiased advice, on a home purchase, analyze your desires, financial situation, and expectations, and connect you with the right mortgage provider at a competitive interest rate. Sound good? Mortgage brokers perform such tasks and much more.
They are not magicians, but they take the burden from the shoulders of borrowers performing the following financial services:
- they gather initial data and search for options from many lenders;
- they help with the application process;
- brokers help you evaluate how much mortgage you can afford;
- they know how to present the client's credit issues to get a good or better final rate than expected;
- they can urge lender representatives to take another look at your documents;
- they have experience with mortgage transactions;
- they know the offers of most banks and credit unions;
- they can find the best possible mortgage option at the lowest possible rate for excellent-good credit scores, bad credit, and all types of credit scores;
- they have obtained a license and work officially;
- they can even perform financial monitoring functions;
- they get their clients from point A to point B;
- the fee for their services is less than the lost opportunities of an overpayment for an incorrectly selected mortgage during the mortgage loan term.
Summing up, a mortgage broker is an entity that serves as an intermediary between someone who wants to buy real estate and a financial institution offering loans to do so. It can help you get with a primary residence or a mortgage renewal and save thousands on your budget.
What is the difference between a mortgage lender and a mortgage broker?
Mortgage lenders are financial institutions, banks, credit unions, online lenders, and other lenders that use their funds or the funds of their shareholders, etc., to provide a paid service to finance the purchase of real estate (house, apartment, condominium, land, etc.) They provide financing for a specific term, charge fixed or variable interest rates and fees related to the loan disbursement and administration over the loan lifetime, and profit from this activity.
Mortgage brokers are closely related to the mortgage industry and know the peculiarities of almost every lending institution, but from a different side than the customers; thus, they can give the best advice and find an offer at the best rate. Let us look at what distinguishes them from mortgage lenders and even from mortgage loans experts:
- Mortgage brokers do not practice direct lending. It means they do not lend money to borrowers, either their own or others' funds;
- They confirm their qualifications and are therefore authorized to carry out such activities and to be involved in financial control;
- They know multiple lenders and their characteristics, advantages, and disadvantages, but they are independent. In other words, they are not employed by a lender, unlike mortgage consultants and mortgage specialists;
- They offer multiple options from different lenders, whereas an employee of a bank, a loan officer, a mortgage agent, or another mortgage lender only provides the borrower a choice between different mortgage products from their organization;
- They work as financial advisors and help look at the existing financial situation from a better perspective;
- They help to minimize mortgage costs and thus save considerable money;
- Various mortgage services are offered in one place, and the mortgage broker works by your side.
As you can see, there are many differences between mortgage lenders and brokers. The main difference is that brokers have more tools to help the borrower find the right mortgage because they work independently of lending institutions, which is not the same as being an employee of a bank or credit union and only selling mortgage products of the employer. Usually, financial institutions pay brokers a fee for connecting them with clients.
Main mortgage broker types
There are several criteria for licensing mortgage brokers. It is essential to understand the difference between each type and see the best option for you. According to the amount of time spent in brokerage, there are the following categories:
- Full-time mortgage brokers work only in this business area and do not combine activities in other areas. This usually means a higher level of commitment and professionalism, more attention to your mortgage project, and a better quality of service.
- Part-time mortgage brokers, or the companies that specialize in providing mortgage brokerage services, and individuals who are licensed to provide mortgage brokerage services.
- Online mortgage brokers. One more type of mortgage broker is a robo broker that gives advice based on provided information and smart algorithms
- Offline mortgage brokers.
- Some mortgage brokers offer options only from their panel of mortgage lenders, while other lenders may not be included in this list. Full-range mortgage brokers would look for a lower rate throughout the mortgage market, allowing borrowers to see more options to get a mortgage at a much better rate and at a lower cost.
And of course, mortgage brokers vary by their experience: young specialists and those who have worked in the field for over 5-10 years. Some mortgage brokers who work at a mortgage brokerage are responsible for financial monitoring and anti-money laundering. Some mortgage brokers specialize primarily in working with financial investors, and others prefer to work with first-time home buyers.
How do mortgage brokers work?
When mortgage brokers receive an application from their clients, they review the mortgage criteria and look for open loan options. Whether it is the first mortgage or a new mortgage, the second, or the third one, mortgage agents will be able to find an adequate solution for you. In doing so, the borrower is informed of what variations are available, while the broker can communicate their potential arrangements for mortgage loans.
The mortgage broker contacts mortgage providers, compiles the data, and makes the requirements, rules, forms, etc., understandable. Some borrowers seem limited in real estate financing options due to the lengthy process, but this is not the case with a mortgage broker.
The mortgage broker will call the mortgage lender's office if needed and help borrowers get their documents reviewed. Another essential thing about mortgage brokers is checking borrowers’ credit reports.
Mortgage brokers get the best mortgage loan alternative because they negotiate or find favorable interest rates and can waive some of the fees associated with the mortgage. In addition, a mortgage broker may give you information about direct mortgages and mortgages that can be obtained only from inside the industry. A mortgage broker helps choose the mortgage rate, and the down payment leads the borrower to the best deal.
How to choose a mortgage broker?
Choosing a mortgage broker is a responsibility, and clients have to ask several questions before committing to cooperation with the broker:
- license information, including the facts of revocation and renewal;
- experience in the field;
- whether it is a panel or full market mortgage broker;
- would they recommend deals that can be applied directly and not only through the brokers;
- what are the fees;
- when the broker would be available to contact the client;
- look for the specialist with whom you would feel comfortable working on your mortgage;
- check what discounts on a mortgage you can get using the broker's services;
- check feedback about the mortgage broker from the customers who used their services.
Mortgage brokerage is an essential service for home purchases, getting the best expert advice for home buyers.
Pros and cons of using a mortgage broker
People use mortgage brokers to quickly and easily manage all the steps on the way to the desired mortgage loan and real estate purchase. Their services are convenient but not suitable for everyone. Some people prefer to perform the whole procedure on their own. Let us look at the advantages and disadvantages of using the services of a mortgage broker.
The list of advantages is long:
- Time-saving: brokers find the information and use the data you provide to evaluate your case;
- Mortgage brokers have several valuable connections and can get a better deal;
- Mortgage rates would be lower.
The disadvantages include:
Fees paid to mortgage brokers can be high, and one should carefully read the fine print. Normally, the mortgage broker's fee appears on your closing costs.
Legal regulation
According to the legislation, there are four types of licenses required under Mortgage Broker Act:
- mortgage brokerage;
- mortgage administrator;
- mortgage broker;
- mortgage agent.
Mortgage brokerage is an entity legally registered in Canada as a corporation, partnership, or sole partnership.
The above-mentioned act implies the following requirements for mortgage brokerage:
- Canadian registration of business or sole owner have to have Canadian residence;
- Valid Canadian address is required;
- Mortgage brokers have to have valid licenses emmited by a local financial services regulatory authority;
- Errors and omissions insurance for $500,000 would cover fraudulent acts and insurance for any occurrence for $1,000,000 within one year.
Mortgage brokers work under the Mortgages Lenders and Administrators Act regulations that oblige a mortgage broker to meet several requirements:
- Be responsible for business finances;
- independently of mortgage brokerage type, it should not give grounds to believe that business is not or will not be carried out legally. It applies to sole proprietor' officers, management, and owners;
- a brokerage should not perform any activity violating the act;
- there cannot be false statements in the application for getting a brokerage license.
- Licenses must be issued in the legal name of the brokerage, and the brokerage can not use the same name as somebody else already registered to avoid the situation when customers are misled. Also, offensive names can not be registered.
- Changes in the address office location, the opening of a new office, changes in the brokerage management or employees, and mailing address must be informed.
- Foreign-owned businesses can receive a Canadian license for a mortgage brokerage. Still, it requires the incorporation of brokerage in Canada, being a resident in Canada (sole proprietorship), and the partnership has to be formed in Canada.
There are the following requirements to become a mortgage broker:
- Maturity age;
- Canadian residence;
- Canadian mailing address (no POB are allowed to be used as the address);
- Authorization for being a mortgage broker and to deal and sell property in their name;
- It is allowed to work for one Mortgage Brokerage.
- The license of the mortgage agent has to be issued by that for at least 24 months;
- Complete and approved examination for being a Mortgage broker.
- To pass a criminal background check;
- To have one Principal mortgage broker responsible for financial monitoring.