First a Little Back Story…
It was when I first started investing in Toronto real estate that I was introduced to mortgage brokers. Prior to this I always just worked with my local bank (in my case RBC bank) to get a mortgage approved. One of the first questions to pop into my head when a colleague mentioned the mortgage broker channel was how much is using a mortgage broker going to cost me?
Since using (and now being) a mortgage broker myself I’ve had some experience that I’m going to break down for anyone that is considering to use the mortgage broker channel to obtain financing
Mortgage Brokers are Paid by the Banks
That’s right. We are paid a finders fee, or commission, for bringing the banks some additional business. As a client you have the benefit of someone negotiating on your behalf for the best rate and having banks compete for your business. At the same time we don’t actually get paid until a deal is closed (i.e. funded) so you better believe we’re going to be giving your file the best possible attention we can.
My Friend Was Charged a Fee
In very unique or unusual circumstances where funding needs to be sourced through private equity, or alternative channels where we don’t receive a finders fee we may charge the client a fee – but full disclosure is always provided up front before you sign or agree to anything. In my experience this accounts for less than 5% of transactions in our brokerage that are funded. Often times this fee (if being paid by the client) is released (or held back) by the solicitor upon closing of your deal from the funds requested by a bank- which means it’s not directly paid out of your pocket to the brokerage.
tl;dr a mortgage broker is compensated by the banks and acts on your behalf. In the very unlikely circumstance that a fee is charged to a client to obtain a mortgage through a private lender it will be disclosed up front.