Should I Hire A Mortgage Broker?

by Pam on October 24, 2012

What is a mortgage broker?

A mortgage broker is a person who will help you to find a mortgage by doing the leg work for you.  Mortgage brokers can save you time, and sometimes, they can find you a better rate than you can find on your own.  Mortgage brokers represent a large number of financial institutions and they are compensated by the financial institutions when you are approved for a mortgage.  So, the services they provide to you are free.

Will a mortgage broker find you the best rate?

Although, ideally, you would expect to get the best possible mortgage interest rate when you hire a mortgage broker, this is not always the case.  For instance, when my husband and I were ready to purchase our second home, we got in touch with a local mortgage broker.  She took our information over the phone and was able to provide us with an interest rate in less than two hours.  She was very efficient and we were satisfied with the rate.  But, as circumstances would have it, we ended up doing a little leg work of our own, and we were able to get an even better rate.  This really surprised me as I had expected that the mortgage broker would have provided us with the lowest rate available.

I will do the legwork on my own from now on.

This experience showed me that with a little effort and time on my part, I was able to save a significant amount of interest on my mortgage.  Although the mortgage broker was able to save me some time and effort, they were unfortunately unable to provide me with the best possible interest rate.  So, at least for me, in the future when I want to purchase another home, I will continue to do the leg work on my own.  After all, it doesn’t take a lot of time to contact a few local financial institutions to see what they can offer me.

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{ 4 comments… read them below or add one }

steve stretton October 25, 2012 at 5:09 am

They may be able to save you time and effort but they get a percentage of what you’ll pay. Since it wouldn’t be that time-consuming to phone local financial institutions, it’d be best if you do things yourself. Besides, knowing all the information could show you which option is better.

Aleem December 4, 2013 at 6:05 pm

Hi Steve, I realize I’m a little late to the party here, but I came across this blog post by Pam (thank you for the information and the commentary by the way, solid information)
Great point Steve about the broker getting a percentage. To clarify for any other readers, the bank pays a mortgage broker a referral fee, typically a percentage of the mortgage amount funded. It is the same for when you go to a bank, and it something that more people should be aware of. See the mortgage arm of a bank is separate from the branches. If you obtain a mortgage from the bank, the branch that you go to is paid a similar referral fee from the mortgage arm. The branch has revenue targets and all of that to meet. Another important thing to mention is that the more the branch charges you, the higher their revenue stream. Brokers are not paid the same way, as mentioned earlier, they receive a percentage of the total mortgage amount funded, so it depends on the length of the term and the mortgage amount, not the interest rate.
I hope this helps! Aleem

Aleem December 4, 2013 at 6:15 pm

I apologize for posting again, my first post (and i cant figure out how) seems to have cut some stuff out. Pam (thank you for the information and the commentary by the way, solid information) the one thing that came to mind when i was reading your blog was this common concern that i field with a lot of my customers. I get asked a lot about “the best rate”, and the “cheapest mortgage”…what i have found through asking more deeper questions to clients is that they often mean that they want to pay the least amount of interest on their mortgage. Sometimes (in fact on many occasions) the lowest bottom line cost on their financing, and the best rate, is not the same thing. Not all mortgages are created equally, and there are some subtle differences between products that can end up costing you thousands on your bottom line. Although interest rate is an important factor to consider, it should not be the only thing to consider. For example, a couple of years ago now one of the leading big six institutions released a promotion of the first mortgage with an interest rate of below 3%. Looking at it more closely, though there were some significant draw backs….not to mention that they were not offering any strategy behind the mortgage to help you pay it off sooner and “inflation proof it”

Great point Steve about the broker getting a percentage. To clarify for any other readers, the bank pays a mortgage broker a referral fee, typically a percentage of the mortgage amount funded. It is the same for when you go to a bank, and it something that more people should be aware of. See the mortgage arm of a bank is separate from the branches. If you obtain a mortgage from the bank, the branch that you go to is paid a similar referral fee from the mortgage arm. The branch has revenue targets and all of that to meet. Another important thing to mention is that the more the branch charges you, the higher their revenue stream. Brokers are not paid the same way, as mentioned earlier, they receive a percentage of the total mortgage amount funded, so it depends on the length of the term and the mortgage amount, not the interest rate.

David September 8, 2016 at 5:44 am

Hi Steve,

(a bit late in the convo). Just wanted to mention that when doing your own research or even when getting advice from a mortgage broker to remember to mention if there is PPI attached to the policy or not and whether you want it or not. This is one type of finance that PPI was heavily mis sold on as the commissions brokers and banks were getting were pretty high.

References:
http://ukscblog.com/new-judgment-plevin-respondent-v-paragon-personal-finance-limited-appellant-2014-uksc-61/
https://www.theguardian.com/business/2016/aug/02/ppi-claims-all-you-need-to-know-about-the-mis-selling-scandal

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