What is a mortgage broker?

“People think you go to a mortgage broker when you have bad credit or the bank won’t give you a mortgage,” says Paula Scott, a licensed mortgage broker and founder of Best Rate Financial, a brokerage that sits under The Mortgage Centre, an established mortgage brokerage network. But she thinks more people should seek out the advice of a mortgage broker before heading to the bank. “We have more experience and education, our services are free.” And mortgage brokers have access to multiple lenders, too. 

One of the biggest advantages of going through a broker, according to Scott, is personalized attention. “We review the applicant’s information, find out their short- and long-term goals, compare mortgage products, and ultimately place them with a lender that has the most favourable rate with the most favourable mortgage conditions.” 

That’s great if your situation is unique, like if you freelance for a living, for example. But even if your situation is pretty typical, there are a variety of benefits a mortgage broker can offer that you won’t necessarily find at a bank.  

Now, what qualifications does a mortgage broker have?

Across Canada, it is regulated that everyone who deals or trades mortgages to be licensed. In Ontario, for example, it is covered under the Mortgage Brokerages, Lenders and Administrators Act.

There are two types of people you might deal with at a brokerage: A mortgage broker and a mortgage advisor. 

Regulations vary from province to province. But in most cases, mortgage brokers are required to have been licensed as a mortgage agent first, and for a set period of time, before applying for a mortgage broker licence. They are also required to have successfully completed an approved training course and exam. Mortgage agents, on the other hand, work under the supervision of a broker and are not required to have the same level of education to carry out mortgage activities.  

Where to find a mortgage broker

Since a mortgage broker’s services are free, and you’re not obligated to move forward if you decide to walk away, there’s virtually no downside to meeting with one. Ask your real estate agent or your friends and family for referrals. You can also scour the internet to find brokerages near you (as well as the best rates). Be sure to read reviews and check out ratings with the Better Business Bureau. Once you’ve found a broker, set an appointment to meet and discuss your needs. 

What a mortgage broker needs from you:

Mortgage brokers can usually get better rates than the banks can and they are nimbler on their feet. But they do need a few things from you before you can apply for a mortgage and secure a mortgage rate.

The more organized you are, the more likely you’ll be approved for a mortgage. While requirements may differ slightly from brokerage to brokerage, having the following on hand ensures you’ll be off to a good start:  

• Identification: Have a government issued photo ID, proof of your address ready and your social insurance number. 
• A summary of assets: This includes your current balances in your savings and chequing accounts, any retirement funds or investments you may have, and other equity or properties you own. 
• A summary of liabilities: Credit cards, loans and other mortgages.
• Housing history: You will need to provide a history (current and at least two previous addresses) of where you have lived. This may include paid rent and, if applicable, any other properties you own. 
• Information on the property you intend to purchase: This will include the property listing and address, property taxes, closing costs and land transfer taxes.
• Employment and proof of income: Like banks, your mortgage broker will want to see how you make money and intend to pay for the loan. This typically means for you to include your T4 and T1 statements or Notice of Assessments (NOAs), pay stubs and a letter of employment. If you are self-employed, that doesn’t mean you are out of the running. Just provide two years of documents including NOAs and incorporation documents if you have them. 
• Confirmation of down payment: This usually includes at least three months of bank statements, your most recent RRSP and investment statements, a letter if the down payment is gifted, and the source of borrowed funds, such as a line of credit, if qualified. 

How mortgage brokers get paid 

Mortgage brokers can offer their services for free because they are paid through the lender in which the deal is placed. The commission is sometimes paid upfront and sometimes paid over the term of the mortgage, and usually runs from 0.5% to 1% of the mortgage. 

Because mortgage brokers rely on a network of lenders to get clients the best mortgage rates available, you might wonder if you are really getting the best rate or the rate from the lender that gives your agent the biggest payout. According to Scott, remuneration is equal across the field. “All brokers get paid equally from each lender, so there’s no hidden agenda to work with a specific lender unless that lender is giving the best rates to my customers,” she says. 

That hasn’t always been the case, though. In the past, some lenders offered points to brokers who could then use the points to pay off penalties. Brokers were incentivized to use that lender over others regardless of rate, but more robust regulations mean that those types of practices are no longer permitted in the industry. If you have concerns, ask your broker directly if they are motivated to use one lender over another and what their reasons are. But whether you choose to go with a broker or a bank for your mortgage, like anything else, the best thing to do is to shop around. Compare your options, and go with the one that offers the best services and rates. 

Should you use a mortgage broker or a bank?

Not sure who to go with? Check out the pros and cons for each.