The Mortgage Broker And You

Hi.

You want to buy a house or perhaps you have one and it's time to renew. Where is the first place you turn to for help? Your bank. After all, you have most likely been with them since you opened your first savings account, an idea that was forced upon you by your parents. They will know what to do and they will help you because you've been with them 10, 20 years.

I totally get this kid...

And they do help you. You go in, talk about purchasing a house and they say we will give you the money to buy this house and you can slowly pay us back over the next two or three decades with this little amount of interest tacked on. Next thing you know, you've signed some papers, told your Realtor and by this time next month, you are a proud new homeowner!

Yes, mortgages are complicated. Some are more complicated than others. Hotels, apartment buildings, skyscrapers, they all have mortgages of some type. But let's just keep things simple. I'm talking to you, the simple home owner or buyer.

Yet, what if I was to tell you that in the last decade things have changed in the banking industry? These low rates the Big 6 Banks promote are due to the continuing rise of independent mortgage brokers. Without the threat of mortgage brokers, banks and their interest rates would be no different than the price of gas between 'competing' gas companies such as Shell, Mohawk, Esso, Petro-Canada, Superstore, Husky, Supersave. Is it really worth the drive to save 1/2 a cent per liter?

Or borrowing money to buy a house already made out of cash ? 

While economics 101 taught us that a competitive landscape for a product was ultimately beneficial for the customer as companies would work toward a lower price/better product to win customer loyalty that has been proven not true in the gasoline and banking industry. Mortgages, like gasoline, are products that have inelastic demands. There will always be a need for both. Very few people can afford paying for housing without getting a mortgage. Very few people can move vast distances quickly without using gasoline.

If you truly need or want gas or a mortgage, you don't believe you get a choice of shopping and comparing products. You have to accept what is offered because you have been ingrained since your first savings account to believe that. It's what you see in advertising. X=Y. You don't get a choice. So be it.

The rise of the profession of the mortgage broker has changed that landscape. They are dedicated individuals that will find you lenders outside of the Big 6 who will and can offer you a matching or better product. Because of these brokers, they can't just give a wink to each other and charge 4, 8 or 12% anymore, like the gas companies can. Because people who are truly shopping for mortgages DO have a choice. And mortgage brokers will lead you to them.

Why doesn't everyone use a mortgage broker?  

The guy on the left is wondering who put all those post-its on his face.
The rest are wondering about their mortgage.

A lot of people are using mortgage brokers, nearly 30% of Canadian home-owners used a mortgage broker last year. That's an continuing climb upwards ever since the 1990's. For people who prefer the convenience, they would rather stick with the easiest option. For those who prefer the thousands of dollars that can be saved over the life of your mortgage, a mortgage broker is your best option. They are free. They know what lenders are looking for. They know what you are looking for.

Banks do have an advantage out of the gate. They already know everything about you. They have your banking information, your contact information, most likely you have direct deposit. It's all there on the mortgage officer's computer. Brokers don't have that information. So at first, it might seem like the hassle isn't worth it.

BUT... How big is a 1% savings on a $300,000 mortgage going to be anyways? Is it worth it? 

Mortgage Broker finds you a 2.5% rate. Over 25 years you will pay just over $400,000.

Your Bank, having offered you a 3.5% rate. You pay just under $450,000.

Simply put, YES. A 1% difference can save you nearly $50,000 over the life of your mortgage and save you nearly $150 a month on your mortgage payments!

This doesn't even factor in hidden penalties and fees that consumers discover upon trying to either renegotiate their mortgage or sell their house later on down the line. Sometimes, banks are actually mortgage brokers best referrals. So why not make a free consultation with your neighbourhood mortgage broker?

And to help matters out, here is a simple list of 5 items that all brokers will need as they work towards helping find you the mortgage you need. This isn't a complete list but it's the basics.


1) Permission to represent you and your personal information. 

This is a simple signature on a piece of paper covered in legalese. It states that the broker has permission to act on your behalf, is authorized to request a credit bureau report on you and will submit financial information on your behalf to the lender.

2) Income Statements/ Investor/RRSP Statements

Of course, brokers have to prove you have money coming in to pay off the loan you are requesting and/or have savings you can tap into in case of future financial difficulties. Brokers usually need two recent consecutive pay checks and most likely two years of your Notice of Assessments. Your Assessment is what you receive from Revenue Canada after you have filed your taxes. If you owe money to the government, you have to pay that bill before you will be granted a mortgage.
Yes, the Canadian government always gets first dibs on your money. There's nothing we can do about that.

3) Job Letter

Much like your income statement, the job letter confirms your employment with X company. It's usually written by your boss or Human Resources person and confirms your salary, hours and continued job future. If you work for a trade union, a letter confirming your good standing and wage with the union will suffice.

4) Proof of the minimum 5% down. This can either be a 3 month history of your bank statements or as a gift letter from a close relative.

All mortgage purchases in Canada require the buyer to already have a minimum 5% of the sales price. This helps lessen the foreclosure rate and prevents people purchasing homes above their ability to pay the monthly installments on their mortgage. A gift letter is just that; it's not a loan letter. There is no intention that the 'gift' is to be repaid.

5) Purchase of Sale Contract (eventually)

And lastly, your mortgage broker and lender will need evidence of the house you intend to buy. A Purchase of Sale is available from the Realtor and will contain a variety of information that will be helpful to the lenders. Information on property taxes, sale price, legal details of the property in question should all be in your Purchase of Sale contract.


I say eventually as it is possible (and recommended) that to avoid disappointment you find out exactly how much house you can afford before you go shopping. This post here explains the difference between being pre-qualified and pre-approved. A broker and lender don't necessarily need you to have already picked out a house, they just want to make sure that you won't be disappointed when you find out that million dollar mansion is out of your price range.

In Summary;

As mentioned, this is a very brief, very simple list for those looking to purchase their first house or even refinance their current home. It's not an exhaustive list by any means as in my experience there are always 'special circumstances' that surround people's employment or sales purchase. But it's a start.

However, if you find a small enough house...