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Sept. 28, 2007
Why use a mortgage broker?
It makes more sense than going to the bank when buying a house.
NEIL SHOPSOWITZ
If you had $400,000 in your investment portfolio, it is likely
that you would meet with a financial planner to help you come up
with the best investment strategy. Your mortgage is one of the largest
financial decisions that you make.
Accordingly, it makes sense to meet with a mortgage planner, someone
who helps plan your mortgage strategy on an ongoing basis until
your mortgage is paid off.
Individual bank branches generally operate as independent profit
centres. One of the ways that their management is rewarded and paid
is based upon the profitability of their overall mortgage portfolio.
It is not in their best interests to offer you their best rates
up front or to direct you to another lender who has a product that
may better suit your needs.
A mortgage broker's primary responsibility is to ensure, as part
of their fiduciary duty to you, the client, that you get the best
mortgage available for your requirements. Mortgage brokers are not
affiliated with any particular lender and, therefore, have the ability
to research the market on your behalf. In addition, there are some
innovative, broker-only lenders who offer mortgage products with
attractive rates and features.
Time is a valuable commodity, and it is a time-consuming process
to go from lender to lender, filling out applications and attempting
to negotiate for the best rate. A mortgage broker follows the market
on a daily basis and is aware of recent trends and new products
that are available. Advertised rates can be misleading, as often,
a mortgage with lower rates may not contain the features which best
suit the client's needs, or may only be available for a limited
time period. A mortgage broker will analyze the client's total situation
to find the best available package of rates and features.
A note about renewals
Mortgage renewals are an often neglected decision, made during the
life of a mortgage. Many homeowners stay with their current lender
because they believe that they will automatically get the best deal
available, it is too time-consuming to shop around for a better
rate, or it is too costly to switch. The reality is that most financial
institutions send out their renewal notices well in advance of the
mortgage maturity date, with relatively small discounts off their
posted rates.
By working with a mortgage broker to shop the market, the homeowner
will truly know whether they are receiving the best deal available.
In addition, in most cases, there is virtually no cost to switch,
as the new financial institution will pick up any appraisal or legal
fees.
The current pricing environment of rates as low as prime minus 0.90
per cent may not be available for much longer. In fact, some financial
institutions have already changed to prime minus 0.50 per cent.
This is happening as a direct result of the sub-prime market issues
in the United States.
Variable rate mortgages (VRMs) are typically priced according to
30-day bankers' acceptances (BA), which are a common short-term
money market investment, guaranteed by the banks. A lender funding
VRMs would typically borrow money through a 30-day BA. This yield
is the cost of funds to the lender. Over the past few months, as
investors have become worried due to the sub-prime market issues,
many have sold off these investments and those who have remained
have demanded a higher yield due to the perceived risk increase.
In effect, the cost of funds has increased by about one half of
a per cent to the lenders, putting corresponding upward pressure
on VRMs. Current 30-day BA yields are about 5.04 per cent –
in July, they were 4.54 per cent.
This is likely a short-term development, until the money markets
settle down.
Cost of working with a mortgage broker
On typical residential "A" deals, the financial institution
pays all mortgage broker's fees or commissions and only if and when
the transaction completes. Financial institutions do this because
the broker does all the work on their behalf and brings them a complete
and qualified package on the borrower and their property. On high
ratio (greater than 80 per cent of appraised property value) second
mortgage transactions, commercial loans and credit-challenged situations,
the borrower will be responsible for some fees.
On a major financial decision, it makes sense to take advantage
of the experience of a mortgage professional, whose primary purpose
is to work on the borrower's behalf.
Neil Shopsowitz is a mortgage broker with Centum Capital
Group. He can be reached at 604-551-8111 or by e-mail at [email protected].
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