Most people are probably familiar with the term mortgage broker, but many Canadians aren’t really all that sure what a mortgage broker actually does, how much they cost, and how much money you can actually save you on your mortgage. The Mortgage Monday column will hopefully address those questions (and more) over the next couple of months, but before we even get to what a mortgage broker does, maybe a good starting place would be what exactly IS a mortgage broker?
The Mortgage Brokers Act of Ontario defines a mortgage broker as
…a person who carries on the business of lending money on the security of real estate, whether the money is the person’s money or that of another person, or who holds himself or itself out as or who by an advertisement, notice or sign indicates that the person is a Mortgage Broker, or a person who carries on the business of dealing in mortgages.
Ummm… yeah. That’s the government for you. Basically, a mortgage broker is someone who “deals with mortgages.” Functionally speaking, though, a mortgage broker is the middle man (or middle woman) between a borrower and a lender, to help in arranging mortgage financing (and is somehow compensated for doing so – almost always in the form of a finders fee paid by the lender… but more on that in coming weeks). A mortgage broker will not only help you find the best rate and term for your mortgage (and all the other neat options being offered with mortgage financing these days), but also walk you through the process step-by-step (as, unfortunately, a lot of the paperwork is “governmentese” like the definition above).
Mortgage Broker vs. Mortgage Agent
While most people refer to anyone who works on mortgages a “mortgage broker,” there are actually several different terms used to describe someone who “deals in mortgages” (gotta keep the general public confused, you know). From a practical standpoint, anyone working on behalf of a Mortgage Brokerage (who is not a licensed broker) is referred to as a “mortgage agent” (which is what I am – I work with Geri Janes, a mortgage broker, and we work under Real Mortgage Associates, a mortgage brokerage). Functionally, a mortgage broker and a mortgage agent are basically the same: we arrange mortgages on behalf of our clients. Mortgage brokers and agents must have a license (which authorizes us to “deal in mortgages”) in Ontario, that we receive and maintain through education requirements put out by FSCO (the Financial Services Commission of Ontario).
There’s a whole other group of mortgage professionals called “Mortgage Development Officers” who work for one specific lender (usually a chartered bank). These folks appear to perform the same function as a mortgage broker/agent, but they’re really only able to place clients in a mortgage with their employer. These are the “mobile mortgage specialists” and people at the bank you chat with when you simply go to your bank to get a mortgage. They can’t really shop around at other lenders like mortgage brokers/agents can, and if you don’t qualify for a mortgage there, there’s not much they can do to help you qualify for a mortgage elsewhere. There are some other differences (they don’t have to be licensed, no education requirements, different disclosure requirements, etc), but the main difference is a mortgage broker/agent can shop around to get you the best mortgage you qualify for, whereas an a bank employee can only offer you what their bank has available.
So, a mortgage broker/agent (from hereon in, by the way, I’m just going to use the term “mortgage broker” – it’s more widely recognized and accepted than mortgage agent, and it’ll keep me from doing “mortgage broker/agent” all the time) is someone who helps a borrower and a lender connect, and works as the middleman between the two parties to arrange a mortgage. Usually, the cost is FREE to the borrower, as the lender usually pays a mortgage broker a “finders fee.” A mortgage broker can shop around to a variety of lenders to find their customer a mortgage that most suits their needs (best rates, terms, pre-payment options, etc). Really, when it comes down to it, a mortgage broker does all the leg work and shopping around in the world of mortgages, so you don’t have to.