So when I was trying to come up with an idea for this week's blog post, I found this little article about the pros and cons of using a mortgage broker. And I thought 'Cons? What cons?". Then i realized I'm a little biased on the matter so I decided to deconstruct these cons as posed by Krystal Yee, an interesting lady who does her own thing at the greatly named www.givemebackmyfivebucks.com and makes some freelance income on the side such as with this article which you can read in entirety here but I'm going to deconstruct it on my blog anyways but still - every writer loves the web hits.
Support Krystal - she's worth the read.
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| 'You don't need double-talk, you need Bob Loblaw' |
The Pros and Cons of Using a Mortgage Broker
Whether you decide to purchase a house in the country or a swanky downtown loft, your home will likely be the biggest investment you will make. But before the keys get handed to you, there is a lot of research and paperwork to do -- and that includes securing financing for the most expensive purchase of your life.
- I'm with you so far, Krystal.
According to a 2011 survey by the Canada Mortgage & Housing Corporation, 81 per cent of recent buyers, at some point, will rely on a mortgage professional (either a mortgage lender or mortgage broker) for advice and consultation.
When you decide to use a mortgage broker to help you with your financing, they will act as a liaison between you and the lending institution. Mortgage brokers negotiate the best available terms and rates on your behalf, and will usually work with dozens of different lenders in order to secure the financing options that you are looking for.
- this is our typical sales pitch; all new mortgage brokers must recite this from memory in their secret initiation ceremony.
Here are three reasons to use -- or not use -- a mortgage broker:
Pro: Since mortgage brokers are only paid when a loan is approved and signed, their assistance will cost you nothing.
Con: Brokers are paid a commission by the lending institution, and don't work just for you.
- I'm glad I wrote the intro before actually reading this - It's more fair to say that brokers work for themselves. All lending institutions provide close to the same commissions - that's actually not a big factor - what we look for is competency, co-operation (ie; some lenders will never finance farm land) and competency again. If we have difficulties with a lender on your behalf, we're most likely not going to use them again just so we make an extra $50.
2. Mortgage brokers help those with less-than-perfect finances secure a loan.
Pro: For those with blemishes on their credit report or a low household income, a broker might be able to negotiate better rates than if you approached the lending institutions yourself.
Con: If your finances are less than perfect, you might not be financially ready to become a homeowner, whether the bank will give you a mortgage or not.
-Most everyone has less-than-perfect finances, that's why you have a consultation with a mortgage broker. A good mortgage broker will tell you what you need to do to qualify, can help you budget or give you a referral to someone who can if you don't and will keep in contact with you to see how you are doing. If you aren't going to be a present client, you might be a future client.
3. Mortgage brokers will save you time.
Pro: Mortgage brokers will do all of the legwork for you in terms of paperwork and negotiating with lenders. They will also be your point of contact for everything related to your financing.
Con: Even though you will most likely save time by using a broker to do all of your negotiating, some brokers may compare the rates from only a handful of lenders. If you want to ensure that you're getting the best possible financing, you will have to do the research yourself. Because mortgage rates are so easily accessible by anyone online, it is a lot easier than it used to be to compare and negotiate with different lenders on your own.
-ummm...well, speaking for myself, i get daily and monthly rate sheets all in one nicely formatted email. If you are concerned if you are getting .2% or .5% less than Prime then sure; you could save maybe $4 a month shopping for yourself but you won't know if that lender is 'competent, co-operative and competent'. Rates are pretty level across the board as public lending institutions are extremely competitive with each other. Plus, some brokers (like me) receive 'unadvertised discount rates' for preferred mortgage brokers. An advantage that online do-it-yourself'rs don't have.
When deciding which type of financing is right for you, here are a few details you need to make sure you share with your mortgage broker or the lending institution you decide to work with.
- please mention assets, please mention assets.
Prepayment
How often will you be able to make additional payments on your mortgage without being assessed a penalty, and how much will you be able to pay?
Frequency of payments
Whether it's weekly, biweekly, accelerated biweekly or monthly, make sure the lender offers the payment frequency you feel most comfortable with.
Penalties to breaking the mortgage
Make sure that you are fully aware of what the penalty would be should you decide to opt out of your mortgage term.
- These are actually details that the broker needs to share with you, not the other way around. These are all considerations in the 'fine print' of a mortgage contract.
The one other thing you will need to decide is if you are going to go with a fixed rate or a variable rate. The advantage for variable is the penalty is awfully small compared to fixed...ask your broker to explain it.
Now...
details you need to share are your assets, liabilities, any breaks in work history the last three years. Your personal information, your SIN #, bank information, any other properties owned, current mortgage amount (if applicable), possibly the current appraised value of your house.
Unfortunately if you are paranoid this will bother you that I will be seeing so much of your financial life, but trust me, I see a lot of people's financial information...yours won't be anything spectacular. To share that information outside of my office is a severe breach of trust and criminally irresponsible. If I don't have your trust and confidence from this relatively anonymous blog or in person, then you will have to find someone you do trust or someone recommends. Ask around.
Whether you decide to use a mortgage broker to help you through the home-buying process or to secure your own financing, it is important that you do your research so that you are happy with your decision. Some banks or lenders might give you the runaround, while a mortgage broker might be able to hold your hand through the entire process, securing a great rate for you. Or vice versa. Don't be afraid to shop around and ask for references whenever possible.
Would you consider using a mortgage broker?
-Thanks Krystal, Mortgage brokering is not rocket science - it's more data analysis with some sales thrown in and long-distance financial forecasting. Brokers are fast becoming a reasonable, growing option for a cost-conscious society. Nothing is more satisfying than having new business come to us because of someone else's referral. It's our way of knowing we are doing a good job.
Until next time...
