Chapter 1 – Broker vs Bank
Before I really knew about the mortgage industry, I assumed that brokers made their livings in one of three ways: charging a fee, increasing a lender’s rate, or using a small lender with high rates for the sake of a commission.
Not a very positive image, but I think it stems from experiences most of us have had in the past dealing with a pushy salesperson. It’s just awkward. I personally get really turned off when someone is trying to sell me something, so I tend to avoid situations in which I’m dealing with a person who works on commission.
I assumed that where mortgages were concerned, using a bank was the safe bet. They’re big, well known businesses. I thought mortgage brokers were mainly for people with bad credit, or who were looking to close sketchy deals.
What I realized was that I had it all backwards. It’s not the brokers’ methods which should be scrutinized, but the banks’!
As a Broker, my sole purpose is to keep my clients happy by finding the best possible product and rate – otherwise I wouldn’t be able to compete. I work with over 30 major lenders in British Columbia including major banks. Brokers are a very good source of business for the banks, so we are generally offered lower rates as an incentive to bring in new clients. Many times, I can get a lower rate for a client from their own bank.
If I hear that rates have dropped before your deal closes, of course I’m going to update your rate. If it makes sense to refinance and switch lenders, I’ll be the first to tell you. I am not committed to any single lender.
Banks, on the other hand, have no incentive to notify you of better products that exist elsewhere. Why would they? Is RBC going to tell you that Scotiabank actually has a better deal for rental properties? No way. I’ve seen banks send clients renewal rates that are way higher than they should be. But most people simply aren’t aware of all the other options.
Another major difference is the quality of the relationship. I genuinely want my clients to be happy. I want anyone who works with me to be able to call my direct line if they have any questions or need any help. It’s a different kind of interaction.
When you’re dealing with a bank, you’re usually on hold and then eventually you end up speaking with someone you’ve never met before. This is why it’s so important to choose a broker who you trust. You could be working with them for years.
Then there’s the flexibility of a mortgage broker. I’ve met with clients across the city at all hours. There’s nothing more frustrating than having a pressing issue and trying to book an appointment with a bank in a difficult time frame.
Let’s quickly review my original assumptions of how brokers get paid:
1. Charging a fee
99% of the time, brokers do not charge clients a fee. And if they do, it must be fully disclosed beforehand.
2. Increasing a rate
I couldn’t even if I wanted to. My job is to connect the lender and the borrower. The lender sets the rate.
3. Using a small lender with high rates for the sake of a commission
I have access to over 30 lenders in BC. Some are small like Blueshore Financial and some are big like TD. All of them are legitimate, competitive businesses, and they all offer comparable commissions. Personally, I don’t even look at what each lender pays, I’m more concerned about getting the deal done in the best way possible.
As a Mortgage Broker, I constantly have to fight off the image that I’m “selling” something. As I mentioned earlier, I get really uncomfortable when dealing with a pushy salesperson, so I can see why people might be hesitant to deal with a mortgage broker if that is their perception. Although I am in competition with other mortgage brokers, I am really not a salesperson as much as I am a representative and negotiator.
I can see the appeal of a bank. They are familiar, it feels safe to disclose your personal information to them, and, the fact is, rate isn’t a major consideration for some people. But I would bet that if you speak to anyone who has used a mortgage broker, they would tell you how much better it is.