One of the great things about a mortgage broker is that you can hand the wheel to them and let them drive your mortgage all the way to closing. The stress that eliminates is huge.
Good brokers live and breathe mortgages. They know the intricacies of debt ratios, government regulations, mortgage terms, product differences, you name it.
But not all brokers are created equal. As with any industry of professionals, there are always some who are, shall we say, less than top notch.
The message here is that you can’t afford the wrong mortgage broker. The wrong broker might charge you a higher-than-necessary rate, put you in an unsuitable mortgage, botch your approval and/or miss your closing or conditions dates.
You’ll want to test your broker candidate's knowledge and qualifications before you entrust them with your financial life.
Here are some top questions to ask…
1. How many prime lenders did you close more than $2 million of mortgages with last year?
Surveys have shown that the average mortgage broker sends most of their business to just three to four lenders. The fact that brokers use a core group of lenders isn’t always a bad thing—since it often earns them volume-based rate discounts and faster service.
What’s important is that a broker has a wide scope of lenders that they can use depending on the needs of their clients. There’s no way on earth that a half dozen lenders can have the best terms all the time. Having access to dozens of lenders raises the chances you'll get the best financing for your situation.
Ideally, you want to work with a broker who regularly submits deals to at least seven to eight prime lenders each year. The most competitive brokers deal with more than a dozen.
2. Do you quote each lender’s lowest available rate upfront?
A mortgage broker should be on your side, working for you to get you the lowest mortgage rate on the product that fits your requirements best.
If a broker isn’t quoting you the lowest available rate upfront, they’ve just proven where their loyalty is. Next.
3. If the lender pays you a 100 basis point finder's fee on a five-year term, how much of that do you use to buy down the rate?
In today’s competitive market, it’s not unusual to find mortgage brokers who will give up part of their commission to save you money. It’s called “buying down” your rate.
Rate buydowns are most common among online brokerages and those doing huge deal volumes, since they can afford to earn less on each deal.
Keep in mind that brokers earn their living off lender commissions, so expecting a full-service broker to give up more than half their commission isn’t reasonable. Not to mention a broker earning less on a deal is less inclined to put extra time and effort (read: advice and service) into your deal.
4. What other lenders in the broker channel (including those you don't deal with) have better products for about the same rate?
An honest broker will always give you the information you need to make the decision that’s in your best interest. So, don’t be afraid to test them on their initial recommendation.
Any broker worth their salt would willingly forego a commission rather than steer you into an inferior and/or needlessly expensive mortgage. They should be able to easily identify if any of these top broker lenders have a similar rate with better features than their original proposal:
- Alberta Treasury Branches (AB)
- Alterna Savings Credit Union (ON)
- BlueShore Financial (BC)
- B2B Bank
- Canadian Western Bank
- Coast Capital Savings and Credit Union (BC)
- Community Trust
- Desjardins (ON)
- Equitable Bank
- First National
- FirstOntario Credit Union (ON)
- Haventree Bank
- ICICI Bank of Canada
- Home Trust
- Manulife Bank
- Meridian Credit Union (ON)
- Merix Financial
- RFA Mortgage Corporation
- Servus Credit Union (AB)
- Street Capital
- TD Canada Trust
- XMC Mortgage Corp.
5. What non-broker channel lender currently has the best rate for the same term? And why is your lender's product better?
Let’s say you find an excellent rate offer from Royal Bank on a rate comparison site. RBC does not deal with the broker channel. That means your mortgage broker won’t have direct access to that rate.
A reputable broker should be able to easily explain why the broker-channel lender they’re recommending is superior (whether it be on cost, features, flexibility, etc.).
If they can’t, then they should be honest with you and (when the savings is considerable) recommend you pursue that non-broker lender’s mortgage directly, even though it means a lost deal for them. (Just remember to return the favour by giving that honest broker first shot at your referrals and business the next time.)
6. How long have you been a full-time mortgage broker?
Don’t get us wrong, new brokers can be upstanding, hard-working, caring and all-around great at what they do. But there’s something to be said for a professional with years of experience. One mistake in this business can kill your approval, limit your approval amount, cause a missed closing or worse.
A broker who has been in the industry full-time for 5+ years has built a reputation and lender contacts they can rely on. They know the ins and outs of the business because they’ve seen mistakes first-hand (or have already made them with another client).
This experience can play to your advantage. Skilled brokers can better structure your application (improving your odds of approval), secure a lender exception or negotiate discretionary pricing to get you the loan you need at the price you want. New or part-time brokers often can’t do that.
Mind you, many years of experience don’t always equate to customer dedication and competitiveness. It’s still just one of multiple considerations when choosing your broker.
7. How much volume did you personally close last year?
There are mega brokerages in the industry closing $200 million to over $1 billion in mortgage deals each year.
Don’t expect your broker to be in that kind of range. Those numbers are for brokerages as a whole.
But do expect a minimal amount ($15+ million for a full-service broker and $30+ million for a deep discount broker). A typical full-time broker will be closing around $10+ million worth of deals. Anything less than that, and you should start wondering why their volume is so low.
8. What term do you recommend for me and why?
This should be an easy question for your broker to answer once you’ve provided them with some basic details about your current financial situation, lifestyle and future goals.
If they come right out recommending a "five-year fixed," be wary. Their obligation is to carefully analyze your five-year plan and balance the level of flexibility you might need with the best rate offers they have, considering all available terms.
They should also suggest a renewal strategy should their recommendation include a short-term product, like a one- or two-year mortgage. For example, if they recommend a highly competitive one-year fixed rate, they should explain what your next move might be at renewal in 12 months, given assumptions about rates and your circumstances at the time.
9. Are there any hidden costs or unfavourable contract terms with the mortgage you're recommending?
If you’re like most folks, you’ll ask your broker to find the most competitive mortgage rates available. Presenting you with those rates is the easy part.
A good broker also points out any and all material restrictive terms that come attached to that great rate. That could include:
- A higher-than-normal prepayment penalty (e.g., a penalty of 2.75% of the principal or six months' interest)
- A shorter-than-normal closing period (i.e., 30 days, also known as a Quick-close mortgage)
- A mortgage that prohibits early discharge or early refinances
- A rate that requires bundling another product, such as a line of credit
- A rate that requires the borrower to refinance with that lender before maturity.
Low-frills rates can be good value, but if your broker quotes a low-frills rate without being explicitly up-front about all restrictions (before you apply), then run the other way.
10. What do you think of RateSpy.com?
RateSpy.com is a mortgage rate comparison website. It arms mortgage shoppers with comparative rate data on virtually all prime lenders in Canada.
A mortgage advisor should never fear a knowledge client. Brokers are supposed to be on your side, doing everything possible to get you the lowest cost of borrowing. That doesn’t necessarily mean the lowest rate, however, since restrictions or bad advice can cost you far more than small rate differences. (Of course, the best deals often do have the lowest rate.)
In any case, a good broker should view a mortgage rate comparison website as a tool that can be used to narrow down the most competitive lenders. Professional brokers will help you compare their recommended product with the rate(s) you’ve found online, without being defensive about it.
Despite a slightly higher rate, your broker may indeed be proposing a product that will save you more than the lowest rate you find elsewhere, so hear them out. Just be wary of any broker that badmouths a rate site and dismisses a competitor’s significantly lower rate with little to justify their position.