Mortgage brokers are one of the most important tools in a homebuyer’s journey, but they may not always be as independent as they seem! Mortgage brokers have to put food on the table as well, so it’s important to understand how mortgage brokers make money.
The good news is good mortgage brokers will always work in your best interest, no matter how they’re paid. This is partly because they are legally required to do so, but also because mortgage brokerages live and die on the recommendations of past clients. They’d much rather get you a great deal than burn bridges for a few extra bucks.
With that said, here’s everything you need to know about how mortgage brokers get paid.
How do mortgage brokers get paid?
A mortgage broker is paid via a commission from mortgage providers. When a broker connects a borrower with a lender, the broker will be paid a percentage of the loan amount by the lender. Mortgage brokers generally do not charge the borrower directly.
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How much do mortgage brokers make?
Mortgage broker commissions vary between banks and individual brokers. However, a typical range might be 0.5% to 1.2% of your full mortgage amount. The exact percentage will also depend on the term and type of the mortgage.
For example, if your mortgage was $500,000 and your broker was paid a 1% commission, they would receive $5,000. This amount is paid by the lender, so you’ll never see the bill.
Generally, lenders will pay brokers an upfront commission when a borrower signs their mortgage contract, but there are other commissions they may pay as well. There are two other common commission structures; trailer and renewal fees.
Trailer fees are paid to brokers over time, for as long as the borrower stays with the lender. This will normally be paid in exchange for a lower upfront commission. These fees are intended to disincentivize brokers from recommending regular lender switching, which isn’t always good for borrowers.
Renewal fees are paid to the original broker whenever a borrower renews their mortgage with a lender. While this might increase the likelihood of a broker recommending you renew with your current lender, a broker would also get paid if you were to renew with a new lender. It’s always a good idea to compare rates at renewal time, regardless of how your broker gets paid.
Is it better to get a mortgage from a bank or a broker?
There are pros and cons to using both mortgage brokers and to getting a mortgage from a bank directly. Generally, we recommend you compare rates from a range of both mortgage brokers and mortgage providers in order to get a better understanding of what’s available to you.
Here are some of the differences between getting a mortgage through a broker vs going to a lender directly:
|Compares mortgage rates between multiple lenders||Yes||No|
|Earns a commission on each closed mortgage||Yes||No|
|May be able to offer rates not available on the retail market||Yes||No|
|Can negotiate for a lower rate on your behalf||Yes||No|
|Offers independent, expert advice||Yes||No|
|Can offer a range of mortgage terms and products||Yes||Yes|
|Can offer multiple financial products in one place (e.g. savings accounts, GICs, etc)||No||Yes|
It’s also worth noting that not all brokers work with all lenders. While most mortgage providers do offer their mortgages via brokers, some (like RBC) only sell mortgages directly.
Are mortgage brokers worth the cost?
In most circumstances, a good mortgage broker should be able to make up for the indirect cost of their commission by finding you a lower rate. Brokers often have access to exclusive rates that are not available on the retail market, and many will give up part of their commission to get you a lower rate.
While it’s impossible to say if getting a mortgage through a broker will be worth the cost of their commission, there’s next to no risk in consulting a broker to see what they can offer. You can consult with a broker for free, with no obligations - this provides a good opportunity to see how useful a broker might be for you.
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Other important things to consider
There are a few important things to consider when speaking to a broker.
Ask about trailer fees: Find out if they earn any trailer or renewal fees from a particular lender. While these commissions won’t necessarily stop a good broker from getting you the best deal, they could influence a broker’s recommendation. You need to know if that’s the case.
Your circumstances are important: Remember that your personal circumstances can affect how much help a broker can offer. If you have bad credit, too small a down payment, or are locked into a restrictive mortgage contract, it could be hard for a broker to find you a better deal.
The bottom line
A broker’s job is to save you money, and they’re generally effective at doing so. Thanks to Canadian regulations and the importance of referral business, it’s very unlikely a broker will make recommendations against your best interests.
However, it’s important that you understand how commissions work for mortgage brokers to give you the confidence that their recommendations are not affected by financial incentives.