How do I choose the best Mortgage Broker? The Ultimate Guide to Mortgage Broker Differences, Benefits and Disadvantages
For mortgage seekers who have come to the conclusion that a Mortgage Broker is able to provide more options and lower rates than a Bank Branch, often the next big question is, So, how do I know what Mortgage Broker is best?
Given that the ocean of the internet is simply loaded with lots of nice sounding Broker options, and even more advice can come from friends or family, the ‘Best Broker for me’ can be a rather difficult question to answer.
But by looking at some of the different advantages and disadvantages of mortgage broker types, you’ll gain some valuable information on how to decide on the best mortgage broker to meet your needs, and how you can save (or even gain) the most money over the life of your mortgage.
Mortgage Broker Types
From an industry perspective, mortgage brokers are generally divided into two different types: (1) The full-service broker, and (2) The online discount broker. We will review both here and the differences in how each will typically serve you.
Full-Service Mortgage Brokers
This type of mortgage broker is what most people would think of as the traditional type. Usually, this broker would be contacted by the customer and an in-person meeting would be arranged in a local office.
Relationship and Rapport Building
During the initial consultation, the Broker will ask questions about your financial and financing goals. But as importantly, during the meeting, the Broker will ask questions, perhaps tell stories, and work on building personal rapport, or a good relationship, with their customer. This feeling of a good, trusting relationship is a big part of, and is what many would consider the central benefit of the full-service Broker type.
Access to Multiple Lenders
The full-service Broker will usually endeavour to shop the mortgage market to help the customer reach their financing goals with what they may call ‘The Lowest Mortgage Rate’. There is usually some truth to what these Brokers will say about finding you the lowest rate. That is, given the mortgage lenders and Banks that they work with, they will usually find you the best rate available for your particular situation. But as we will see in the section on online discount Brokers, there is almost always MORE to this truth about the lowest rates.
Service – Beyond Lower Rates
Finally, one of the biggest features of the full-service Broker model is that the Broker will almost always place as much, if not MORE emphasis on their SERVICE, rather than rate. Usually, this service will include:
- Local, in-person availability, and usually more than one in-person meeting during the mortgage process.
- The closer relationship and rapport that often comes along with in-person meetings.
- Service that will remain available for the life of the mortgage. So not if, but WHEN there are changes to the mortgage, the Broker will be there to help the customer save over their lender at that time too. Mortgage changes could happen by moving homes during the term or finding a lower rate on the renewal date.
- Often there are other savings advice that a full-service Broker will emphasize, such as how to save on penalty costs and Mortgage Insurance (CMHC) costs, how to become mortgage free faster with an accelerated payment plan and all sorts of additional and creative advice.
In the end, the Full-Service Broker will tout a lower interest rate than the Bank, but they will often place a lot of emphasis on the relationship and long-term service and savings. The big idea is to get the conversation off of rate only – and there is a critical reason for this that we will soon see.
But overall, it sounds pretty good, doesn’t it? If you said yes, then you’re part of the majority of Canadians who continue to close their mortgages will Full-service Mortgage Brokers. There will always be a place for Full Service Mortgage Brokers in the Canadian mortgage market.
Online Discount Brokers
The Online Discount Broker type certainly isn’t anything new. This Broker model began in the early 2000’s and has been the fastest growing segment of the Canadian mortgage market as we approach the year 2018. Over the years, dozens of websites have popped up across Canada such as True North Mortgage, Mortgage Pal and Rate Hub that collectively fund Billions of dollars in mortgages every year. So why the fast growth over the past 15 years? The answer to this question mainly comes down to one fundamental point:
Lower Mortgage Rates
The Online Discount Mortgage Broker model is all about looking for ways to save money within their business and pass these savings on to the customer in the form of a lower interest rate. Doing business online, and saving on office overhead and additional staff is a major source of this cost-cutting.
So the Online Broker is able to operate on less revenue per mortgage – and they certainly do – often up to 75% less revenue per mortgage funded. The reason the Online Brokers earn less per mortgage is that they user their lender paid commissions to ‘buy down’ the interest rate. In other words, the broker takes money that they could have been paid, and gives it back to the customer in the form of a lower rate.
Often the rate can be 0.25% lower with an online broker, than a full-service Broker – even with the exact same lender. These brokers will often rely on the sheer volume of mortgages arranged as well to run a successful business.
The online discount operators argue that the main reason that people come to a mortgage broker by far, is the ability to receive a lower interest rate, and save thousands of dollars in the process. The Online Brokers are simply a more efficient and effective form of achieving this goal.
But this also brings up an important, but seldom recognised the point that most Full-Service Brokers are not actually providing the lowest mortgage rate possible. While Full-Service Brokers may provide a lower rate than a Bank branch or the lowest rates that are advertised by lenders, they are not actually providing the lowest rate possible to the customer because they are not buying down the rate. Because they may have less volume than the Online Broker, the Full-Service Broker may not be receiving the lenders absolute best deals either.
But rate isn’t the only reason that mortgage shoppers are attracted to online brokers.
Online brokers are often able to provide faster service than full-service brokers. Consider for yourself what would be faster – (1) Booking an in-person appointment time, then driving to an office meeting, then having a 1 to 2 hour meeting and then driving home with some approval information. OR (2) Having a 15 – 20 minute phone call, then talking 10 minutes to complete an application form, and then having another 10-minute phone call or an email to review the approval information.
So while the full-service model can often take several hours or even days to produce answers, the online model can provide the same information in just minutes. Many mortgage shoppers argue that this speed is a major factor in their decision to choose an online model.
The Online Experience
Overall the reputable online brokers will answer questions, protect your information with high security and close your mortgage at a lower cost. But they won’t spend the same amount of time, and provide much additional advice that the full-service mortgage broker will.
So which is better for the customer – Full Service or Online?
The conversation over the best mortgage broker type has been a matter of debate within the mortgage broker industry for years.
While the Full-Service Brokers offer:
- Multiple in-person meetings and a stronger relationship with the Broker.
- Rates that often (but not always) beat the Banks.
- Additional mortgage advice and ongoing service.
The Full-Service Brokers don’t typically provide:
- The absolute lowest mortgage rates.
- Any guarantee that their additional advice will save the customer more money over time.
- The fastest and most efficient service available.
While the Online Brokers offer:
- Lower rates than full-service brokers – often by a wide margin.
- Answers to your mortgage questions and all ‘must know’ mortgage advice.
- Speedy, efficient service that saves customers time.
The Online Brokers do not typically provide:
- In person office meetings.
- A deeper relationship with the customer.
- Lengthy conversation about setting up custom-tailored mortgage plans and other strategies that could prove to have value.
In the end, personality type will have a lot to do with the decision of what Broker type is best. While some are more comfortable completing a transaction like this over phone and email, there are others who are willing to pay extra for the visit to the office and the comfort of an in-person relationship.
The question for you becomes, how much more are you willing to pay for the in-person relationship, and what kind of ongoing trust can you build with a Broker who offers the lowest rates, but actually doesn’t?
This will depend on the honesty and expertise of the full-service Broker, as much as the skill of the online broker to prove their value over the phone only.
While at one time this is where the conversation of ‘ Mortgage Broker types’, would have ended, there is now one more alternative that may intrigue you.
NEW – The Hybrid Broker Model
Hopefully the word ‘new’ didn’t throw you off. The main point of the Hybrid Broker model is to take the best benefits of the Full Service Broker and the best benefits of the Online Broker, that have proven themselves for years, and provide this as a unified service. Altrua Financial, Mortgage Brokers is a pioneer of this Hybrid Broker model and has seen excellent success with it.
The main goal of the hybrid model is to overcome the main objections that a customer would have about using a purely online model, which are:
(1) The lack of any ‘face to face’ or in person support and
(2) The lack of more in depth, long term customized mortgage strategy designed to save money over time.
While still providing the main benefits of the Online Broker which are:
(1) Speed and efficiency and, of course
(2) The absolute lowest online rates.
The Best of Both Broker Worlds
While Altrua’s hybrid model does rely on the phone and email to a bigger extent than most full-service Brokers, it does offer the option to meet in person, face to face for the critical mortgage signing meeting.
Also, at the option of its customers, Altrua will provide in-depth mortgage freedom faster planning, and wealth building strategies and advice that move far beyond the question answering provided by the typical Online Broker.
All while providing the lowest rates and speed that online Brokers are famous for.
At Altrua, we’re excited about continuing to grow this model in our initial locations of Kitchener Waterloo, Cambridge, London, Windsor and Mississauga, and are motivated every day by the positive feedback we get from our customers.
In the end, one of the main messages here is to try speaking to a Bank and at least two different Brokers before you decide on one. Often, once one Broker begins helping a customer, a customer will close themselves off to talking to any other Brokers and the opportunities they may receive here. By shopping a bit more, and gaining this perspective in Broker differences, I’m sure you’ll gain great confidence in the Broker that you decide on closing your mortgage with.
For more useful information, learn about How a Mortgage Broker can Save You the Most on Your Mortgage in our article here.