Buying a home is a dream of many. It requires a lot of research and effort to select the best house. It does not necessarily mean that you just have to decide in which locality you want to buy a home or what facilities are available. One of the prominent things while buying a home is catering to the needs of the mortgage. For this, you can go to a bank directly and take a mortgage or you can go to a mortgage broker. Yes, you guessed it right; if you are up for a broker you may have to pay the mortgage broker commission. The question is whether it is worth it or should you opt for the direct mortgage from a bank! Let’s find out in this article.
Mortgage Broker Commission
One thing that you should know before opting for a mortgage broker is that they are legally abided to work in the best interest of their client. Also, their potential earnings depend on how well their past customers give recommendations. So if they mess up, it will reflect badly on their potential customers. When a mortgage broker connects a borrower with a lender he/she gets the commission as a certain percentage of the total amount of loan. This commission is their earnings. They are unlikely to charge the commission directly to the borrower.
How much Commission a Mortgage Broker Earns?
The commission percentage depends on the bank and the particular broker. Though there is a broad range – 0.5 percent to 1.2 percent on the total mortgage loan amount. Note that the final amount of the commission percentage would depend on your broker, your mortgage type, and its term. Typically the mortgage lender is the one that pays commission to the mortgage broker.
For instance, suppose that you want to get a mortgage loan of $600,000 and your brokerage commission is 0.8 %. In this case, your mortgage broker will receive a $4,800 in commission from the lender.
There are two structures in the mortgage broker commission that you should know.
Renewal Charges: This is the charge that a broker gets when the borrower renews the mortgage with the same lender. If you renew your mortgage loan with the same lender, obviously the broker is going to get paid but even in the case that you choose for a new lender; if not this, then some other broker will get paid. You should compare various rates at the time of renewal to make the best decision.
Trailer Charges: This is the charge that the mortgage broker gets paid for the time that the borrower keeps on choosing the same lender. Here the broker will be paid a low commission upfront in advance. This will ensure that the broker will not recommend other lenders to the borrower. The lender thus enjoys long-term benefits.
Should You Opt for a Mortgage Loan from a Broker or Directly from a Bank?
Now both of these include pros and cons. The best way for you to choose the right method is to compare the rates and terms & conditions by various brokers with the direct bank option. If you go to a broker you can compare rates of various lenders which you will not be able to do in case you go for a direct bank mortgage.
One benefit of going directly to a bank is that they will not be earning any commission if you opt for a closed mortgage while that is not the case with choosing a broker. A broker would be able to provide you with rates that are more flexible and negotiable. In some cases, they may even negotiate the rates on your behalf to the lender to get you a good deal.
Brokers work independently and thus give you a broader perspective of the mortgage market while a bank is limited to selling the products that they have. On the contrary, choosing a bank will give you the benefit of having everything under one roof from savings accounts to GIC to your mortgage loan.
Is Choosing a Broker Worthy of the Price You Pay?
Buying a house is a great deal because it involves you spending your lifelong savings. Thus, choosing a broker that can give you a competitive interest rate is important. You may not be able to negotiate a great deal but a good broker if chosen wisely, can help you with it. Most of the brokers have competitive rates to offer which are not available if you go directly to a retail market and some may even give you lower rates decreasing their commission share.
You do not have to decide whether you want to opt for a broker impulsively as the consultation is always free of cost. You can consult a broker and see if the rates offered are what you would prefer and based on that take a call.
Other Things You Should Know
There are two important points that you need to know when you are in the process of negotiating with your broker.
The Trailer Fees
As stated earlier this is the fee that a broker gets if you stay longer with a particular lender. Make sure that the broker is not giving you a mediocre or an expensive deal just to get more commission. There are chances that it may not happen but It’s always better to know things than to regret them later.
Your Current Financial Position
This includes your credit score, if you have any bankruptcy issues or if you just have a tight financial condition. Make sure that you convey all this to your broker so that he or she can get you the best deal to aid you.
A broker is there to help you get the best deal for a lower interest rate and save you finances. With the Canadian regulations and rules in place and with the nature of their business, the chances are lower that you will get a bad experience. Just for a safer side go out and do your own research, compare rates that are in your budget before making any crucial decisions.