The average salary for a mortgage broker in Canada is CA$79,956. That's a lot of money!
But, how do mortgage brokers get paid? How exactly are they making money if they're helping you get loans from other businesses?
If you're wondering about this, then you've come to the right place. We're going to talk about how mortgage brokers make their money, how commission works, and more.
What Do Mortgage Brokers Do?
Mortgage brokers serve as the middlemen/middlewomen between the mortgage lender and the borrower. They handle all of the strenuous documentation that comes with applying for and securing a loan.
In fact, they also help borrowers gather the documentation and proof that they need to get the mortgage rate that they want. This includes all of the following pieces of information:
- Credit reports
- Bank statements
- Tax documents
- Employment history
While they're reviewing all of the paperwork, they're able to see whether or not there are any problems to anticipate. There could be an error in their employment history or an incorrect income amount. Whatever it is, they can get ahead of the problem and help solve it in no time.
Mortgage brokers also know lenders very well. They know them so well that they're able to sense what kinds of 'red flags' so to speak, may be issues with certain lenders.
While you're looking for a home, you may want to leave the technical financial job to someone else. That's exactly what mortgage brokers are for.
Mortgage Brokers vs. Mortgage Specialists
Mortgage brokers are able to compare and secure rates from different lenders from different organizations. On the other hand, mortgage specialists can only compare and secure rates from the company that they're working with.
It's important to know this distinction because mortgage brokers will be able to offer you more options. If you're set on one lender, a mortgage specialist can be a tremendous help. But, often, people are looking to compare rates from all over.
Those of you who aren't sure which lender you want to borrow from should consider hiring a mortgage broker. Don't get caught up with a mortgage specialist who will keep you with one lender. There could be better rates from other lenders.
How Does Commission Work for Mortgage Brokers?
Commissions vary from organization to organization. Banks and individual brokers work differently.
But, in both cases, mortgage brokers have the ability to earn a hefty pay cheque from a successful transaction. Success happens when a borrower signs the mortgage contract.
You shouldn't worry about losing any money from commissions. The lender is the one who pays the mortgage broker's commission.
It's a courtesy payment from the lender to the mortgage broker as a thank you for referring you as a borrower. After all, the mortgage broker is helping the lender make money in interest from you borrowing for your mortgage. Everybody wins.
What Is a Mortgage Broker Commission Split?
The typical commission rate for a mortgage broker may be anywhere from 0.5% to 1.2% of your total mortgage amount.
However, many factors can influence the mortgage broker's commission split:
- The lender's policies
- The mortgage broker's organization
- Whether or not the mortgage broker works for a company that requires a split of their commission
- The term length of the mortgage that the borrower signed for
- The amount of money that you took out for a mortgage loan
With multiple clients, mortgage brokers have the ability to make a lot of money. Hence, they can make a hefty salary.
How Much Does a Mortgage Broker Make?
The more clients they have, the more money they can make.
However, their exact salary will depend on the organization that they're working for. If a mortgage broker isn't independent, they may have to split commissions with other coworkers or with the company itself.
Some companies pool the money and split based on hours or clients. Some companies allow their mortgage brokers to keep all of their commission.
But, in any of these situations, mortgage brokers have the ability to make a great living, especially if they're heavy on clients.
What Are Trailer Fees?
Trailers fees are payments that lenders make to mortgage brokers over time. Lenders make these payments to the mortgage broker in equal amounts for the length of the term that the client/broker contract.
These payments are meant to prevent mortgage brokers from recommending regular lending switching. If borrowers switch lenders, the lender they used to work with loses money. So, by paying the mortgage broker over time, the lender is hoping to convince them to keep the borrower with that lender.
Trailer fees do amount in a small up-front commission, but they can result in a higher overall payment if the borrower sticks with the lender.
What Are Renewal Fees?
A renewal fee is a payment that a lender makes to the original broker if a borrower renews their mortgage with the same lender. The lender credits the original broker for pairing the borrower with the lender's company.
Since the lender is going to be making more money from the borrower's continued payments, the renewal fee is another thank you payment. This time, the lender is thanking the mortgage broker for referring a borrower who ended up repeating their business.
It's also an incentive for mortgage brokers to convince their clients to stay with their current lender upon the point of mortgage renewal.
However, it's important to recognize that the mortgage brokers get paid either way. They either receive a renewal fee from the current lender or a commission fee from the new lender.
That's why we highly encourage you to review all of your options with your mortgage broker. Don't just stick with the same company because it's easier.
Is a Mortgage Broker Worth Hiring?
If you're looking into applying for a mortgage soon, you may be wondering if hiring a mortgage broker is worth all of the fuss. They're making money from lenders, so often times people will question the information that is presented to them. But, they're also experts at mortgage rates and are second to none in finding you a great rate.
As with most things, there are pros and cons.
Pros of Hiring a Mortgage Broker
First, it's important to highlight that mortgage brokers make getting a mortgage extremely easy. They're a one-stop shop for all of the mortgage types and terms that you could possibly consider.
And, because they're trained in mortgage terms, they know what they're talking about.
Mortgage brokers also do this for free. Well, at least it's free to you. Lenders pay mortgage brokers so you don't have to.
So, many people work with mortgage brokers simply because they're free. It couldn't hurt to get a mortgage through them if it won't cost you anything extra.
Plus, a mortgage broker may be able to get you a better rate. They have relationships with lenders, so they may have access to lower rates for your mortgage.
These relationships are also great for comparing a bunch of different mortgage terms. Talking to a mortgage broker is easier than trying to decipher results from the Internet.
Lastly, mortgage brokers are independent of lenders. So, they don't care which mortgage term you choose. They get paid either way.
So, mortgage brokers are working to find you the best rate possible. No matter the rate, your mortgage amount is still going to be the same. So, they'll get paid the same.
Cons of Hiring a Mortgage Broker
On the other hand, mortgage brokers may not have access to all lenders. Not all lenders work with brokers, so you may be missing out on some deals that are out there.
There is also more documentation involved in working with a mortgage broker. Since they're involved in the process, their name appears in the documentation. So, you may need to sign more forms and offer more information than usual.
Lastly, some people don't like working with new people. So, working with someone new on something as sensitive as a mortgage can be intimidating.
If you're uncomfortable working with strangers, a mortgage broker may not be the right move. This is especially if you don't like the idea of that stranger having access to your financial information.
Although, we should note that mortgage brokers are legally required to keep your information private.
Getting the Best Mortgage Deal
So, how do mortgage brokers get paid? Well, it's a combination of fees that lenders pay in exchange for signing with new borrowers.
You don't pay a thing.
Whether or not you decide to meet with a mortgage lender, you should have an idea of the mortgage rates currently available. Check out the list of mortgage rates in Canada that our team at Insurdinary has put together.