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Posts Tagged ‘pre approval extension’

How Are Mortgage Brokers Compensated in Canada?

Friday, September 25th, 2009

I read an article today that really made my blood boil. It was an article that talked about the difference between buying a home through your bank, and buying a home through a mortgage broker.

If you want the direct link it is:

http://homebuying.about.com/cs/mortgagearticles/a/home_lenders.htm

Here is the quote that upset me as it talks about Mortgage Broker Compensation:

Mortgage brokers are professionals who are paid a fee to bring together lenders and borrowers. They usually work with dozens or even hundreds of lenders, not as employees, but as freelance agents.

Think of mortgage brokers as scouts. They find and evaluate home buyers, analyzing each person’s credit situation to determine which lender is the best fit for that person’s needs. The broker submits the home buyer’s application to one or more lenders in order to sell it, and works with the chosen lender until the loan closes. A good mortgage broker can find a lender for just about any type of credit.

The mortgage broker working to secure your loan is earning a fee for the transaction and the better deal they achieve for a lender, the more they are paid. Don’t be too anxious to disclose to a broker the interest rate you are willing to accept–let them tell you what terms they can secure. Shop around to make sure the terms are reasonable.

It’s the line that I have highlighted, bolded, and underlined that has me upset. It says, “the better deal they achieve for a lender, the more they are paid.”

This is completely FALSE!

In Canada, if a mortgage broker is working with a client, they have a fiduciary duty (duty to protect the financial best interests) to their client. Offering a higher rate, and getting paid more, would be a direct contravention of this rule.

In fact, the banks don’t allow it! If you are paying a higher rate, we don’t get paid more, as a general rule.

As a mortgage broker, I try to find the best mortgage rate for my clients. There are four reasons for this:

  1. The lower the rate, the more affordable the payments, the better it is for the clients
  2. I have a fiduciary duty to protect the financial interests of my client
  3. If I don’t get them a great rate, they won’t be happy and refer future clients to me
  4. I am paid the SAME at most financial institutions!!!!

As a Canadian mortgage broker, I am paid almost the exact amount from lender to lender regardless of the terms my clients accept. If they get a deal for 4.09% at one bank, I am likely getting paid the same (or damned close to it) at most other lenders for a similar rate and product. The difference isn’t substantial enough for us, as brokers, to go running around for an extra $50 here or there. In fact, we are more “service” driven that compensation driven. It profits a mortgage broker nothing to get 20% higher commission at lender A over lender B if lender A is unable to deliver fast approval and fast review of documents.

I am very open with my clients. If you want to know how I’m paid on a mortgage deal, I’m happy to tell you, and compare that to what I’d get paid at other institutions so you can rest assured you are getting a fair deal.

Until next time, happy house hunting!

Can You Extend Your Pre-Approval Rate?

Thursday, August 6th, 2009

Given that rates were at the lowest point EVER back in May/June (around 90 days ago in some cases) several people are starting to face their pre-approved rates expiring. Today’s rates are around 0.50% – 0.75% higher than they were previously so, naturally, clients are asking me if they can extend the pre-approval period.

The answer: No.

The bank gives you 90 or 120 days (depending on the bank) where they will hold the rates for you. If rates fall, you get the lower rates. If rates rise, you get the lower rates. They put you in win-win situation. However, they will not extend that period of time by even ONE day.

So, if your broker tells you that you have 90 or 120 days to find a place, or for your rate to be held, you will need to actually close on the transaction by that date, not just write an offer.

I want to write this out again because it is important, and a cause for confusion amongst applicants regularly: you need to CLOSE (money changed hands) by the rate expiry date on your pre-approval, not just write an offer.

Notice that I didn’t make any mention of “possession” in that sentence. Typically, for example, completion will be on the 1st of the month, with possession on the 2nd. It is the “completion date” that matters for your pre approval. Many times, people complete on, say, the 1st, and don’t take possession (get the keys) until the 15th of the month. This can happen for a variety of reaons: have to honour their current lease, trying to close quickly to preserve the rate but the sellers don’t want to move that fast.

So, talk to your broker and realtor (they should be a pair that works together) about setting the completion date within your pre-approval rate hold period, and then set the possession accordingly. It may save you tens of thousands of dollars to take the time and go through the effort.

Questions? Email me directly at smith.rowan@mortgagecentre.com

Thanks for reading!