In a nutshell, a mortgage broker acts as the ‘go-between’ a borrower (you) and the lender (typically the big Canadian banks). Mortgage brokers act on your behalf offering their expertise and contacts for free, and receive their commission from the lenders only once a mortgage is arranged. There may be charges for their services if you have an exceptional situation, such as very poor credit, as they may need to spend more time on your application.
They are able to get the best rates for homebuyers and their rates are typically discounted when compared to the big bank's posted rates because they arrange so much volume for the lenders (almost $50B last year). As a result, many times the banks and other lenders compete amongst themselves to offer the broker the best rate in order to secure their business. Many deal with over 65 lenders, and this is the reason why they can get the best rate for almost any person's situation.
The residential mortgage market is extremely lucrative and competitive, as there were $191B worth of mortgages approved last year by 80 lenders. As a result, brokers are becoming more popular as more people are turning to them to find the lowest rates, representing an estimated 25-30% of mortgages being arranged according to Jim Murphy, president of the Canadian Association of Accredited Mortgage Professionals (CAAMP).
Many people aren't sure where brokers actually source the funds from. A recent report by Canada's leading mortgage systems supplier, showed that they secured home loans through the following channels through their network in April 2008:
The actual mortgage rate arranged by the broker, could be influenced by many factors, some of which are:
As is the case with brokers in other industries such as insurance, mortgage brokers are generally former employees of the lenders such as banks. As a result, they know the ins and outs of the industry, who to contact and where to find the rates across Canada. If you're looking for help arranging your next mortgage, a broker, may just be a sound option.
Kelvin Mangaroo is the founder of which enables Canadians to find mortgage brokers in Canada and compare mortgage rates.