Most people ask “are independent mortgage advisors free“? The short answer is Yes, there is no direct out of pocket cost to you when using someone to help you get a mortgage, when it comes to how they get paid.
If we peal back the layers a little bit, the way that the mortgage industry works, even if you are going in to your bank and using a mortgage advisor in branch, or you are using a mortgage specialist from a bank, who is paid on commission and not a salary, or a mortgage broker, who has access to more than just one bank and one lending product, the cost of the service is built into the pricing of your mortgage rate.
That’s right, you see, even your bank, the branch that you go to, or the advisor that you visit, is under a different umbrella of the same bank. The branch rep or the specialist will refer the mortgage application to the banks Mortgage division. Upon approval and completion of the mortgage, the mortgage division will write a cheque to the branch, and then the advisor will get paid from there, and the specialist will get a commission from there.
Similarly, when using a mortgage broker, the referral fee from the bank, instead of going to the branch, will go to the mortgage broker’s office. This referral fee is a lot less than what the bank pays to the branch if the mortgage is sourced through there. And as a result, many times, through a mortgage broker, you are able to obtain wholesale rates, as opposed to retail rates directly from the bank.
The question that might come to mind now, is “how is this possible, when interest rates fluctuate – last year at this time the rates were around 4% and this year they are around 3%”.
The spread is the most important part of the equation here. Rates go up and down in order to be within a band. For example, the bank needs to make 2% all the time, net of any costs, so if it costs them 1% to borrow the money, then the rate will be set at 3% or more.
Now, if the cost of using the service of a mortgage broker is already built in to the rate you are going to get. And if in most cases, you will be able to access wholesale rates only through a mortgage broker. And the mortgage broker is able to help you shop your mortgage to all of the lenders across Canada – as opposed to just one bank – then why would you want to go anywhere else but to a mortgage broker, to get your mortgage?