(Three-minute read time)
Are you thinking of buying a home and wondering if a mortgage broker is right for you?
Maybe you have used a mortgage broker before and are just curious how the mortgage broker got paid since you didn't get an invoice from them.
Keep reading, and you can learn the facts about how mortgage brokers get paid in Ontario. The process is similar across Canada and other parts of the world. Still, this article was initially written for Ontario readers.
How Much Do Mortgage Brokers Charge?
For most homebuyers, the cost to you is zero. Mortgage brokers don't charge you directly because the lender pays them. In some cases, usually with alternative lending or some unique circumstances, there is an upfront fee. This fee is sometimes called a lender fee or an application fee. Sometimes, part of this fee represents the mortgage broker's commission, and sometimes this fee goes directly to the lender.
You might also see a lender fee in cases where the mortgage rate is discounted. If you are asked to pay a fee, never agree to pay it in cash to the broker. All fees must be documented and disclosed to the homebuyer.
How Do Mortgage Brokers Get Paid?
A mortgage broker is not an employee of any bank or other lender, so they do not receive a regular salary. Instead, they collect a commission (also called finder's fee) from the lender when your mortgage closes. This means once your lender provides the funds for your mortgage, they also pay a small commission to the mortgage broker that arranged the deal.
Usually, the commission is a one-time payment to the broker once your mortgage has been funded. In some cases, the mortgage broker may also get a commission when you renew your mortgage after the end of your term (usually five years).
When the lender pays a commission to the broker at renewal, it can reduce your mortgage broker's chances of trying to "churn" the mortgage. Churning means switching you to another lender when it provides no benefit to the homeowner, only to capture another commission. Often, it is a good idea to consider switching lenders at renewal. Still, you should always consider how the switch affects you. Avoid incurring switching costs if there is no good reason to do so.
In some cases, the mortgage broker gets an ongoing payment from the lender after your mortgage has been funded. This is called a trailer. Usually, the upfront commission is reduced, but the mortgage broker receives a more steady stream of income instead.
Your mortgage broker is required to disclose how they get paid, and you should ask for clarity if you don't understand.
When Does A Mortgage Broker Get Paid?
Usually, the commission payment comes through within a few weeks of your mortgage closing, depending on the lender and how fast the brokerage can process payment.
Remember, a mortgage broker only gets paid after your closing day. There is no salary or hourly pay for the time spent on mortgage applications that don't get approved and funded.
Can a Mortgage Broker Get You A Better Deal?
Mortgage brokers work with dozens of lenders to find the best offers available. The best brokers also have great relationships with some of Canada’s biggest mortgage lenders and big banks. These relationships mean that you might even get a better offer from your bank through a broker than by going direct.
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According to FSRA, more than 40% of people use a mortgage broker when getting a mortgage.
Do you need mortgage help? Book a call with a Professional Ontario Broker today at no cost or commitment: https://www.wealthtrack.ca/discovery
To read the full article and learn more about how mortgage brokers get paid, visit: https://www.wealthtrack.ca/blog/how-do-mortgage-brokers-make-money
