Essential Knowledge Series
Most people who hear the word broker think back to stories about how someone they know got scammed by their broker or was charged an arm and a leg. This article is to help you as the consumer know what questions to ask when dealing with a broker and make sure you don't get taken advantage of.
In this post, I will be outlining 3 of the most common questions asked when dealing with a mortgage broker?
Do I have to pay my mortgage broker?
Do I have to pay a fee to the mortgage lender? If so, what hidden costs should I watch out for?
My family member/friend went through a broker and didn't pay for XYZ fee. Why am I paying for it?
1. Do I have to pay my mortgage broker?
The short answer is yes and no. It will all depend on the type of transaction you are completing through your broker and where you will be borrowing your funds from. If you have a good credit score and your file falls within A lender guidelines, generally speaking, you won't be paying any fees to the broker. The lender in those situations will compensate the broker.
If you have to go through a B lender or private equity options, generally the lender doesn't compensate the broker very much, if at all. In these instances, the broker will likely charge a fee for their services along with the lender. Some of you might be asking yourselves, "why should I have to pay a fee when others don't?". That's a good question and I, along with everyone else would like to avoid paying any extra fees whether it's a phone bill, car purchase or any other transaction type.
When it comes to your mortgage transaction you have to ask yourself if the fee is worth it to you. The saying I tend to always return to is "50% of something is better than 100% of nothing". In other words, if the difference between you being able to purchase your dream home or investment property is a small fee, I would rather pay the fee. Let's face it, if you are already borrowing $500,000 for your purchase, what is another $5,000 fee paid off over 25 years? $17 a month? Not something I would lose sleep over.
Another aspect that is important to think about when it comes to fees is the difficulty of the mortgage you are trying to obtain. If you are a first-time home buyer with minimal debts and a great income, sure the broker shouldn't be charging a large fee, if any. But if you're in a situation where you are desperate for financing and two weeks to closing, I think it's appropriate for your mortgage broker to charge a bit more of a fee. The same goes for investment properties and people who own multiple properties. More complex files require higher fees because of the increased work your broker will have to do.
At the end of the day, no one wants to pay fees. The best way to avoid fees is to take care of your finances and your credit score. If you want to learn more about A versus B lenders and help yourself avoid as many fees as possible, click here.
2. Do I have to pay a fee to the mortgage lender? If so, what hidden costs should I watch out for?
Similar to the first question, the answer is yes and no. When getting a mortgage through an A lender, you generally won't pay any lender fees. If you go to the B side or private, however, the lender normally charges a fee. Is this fair? I would say so because the lender technically is taking on more risk by the very nature of giving out money to someone in a higher risk category. After all, if you were lending money to your two friends and you knew one of them wasn't the best with money, wouldn't you want to get more from the deal since it's a higher risk to you?
As far as hidden fees go, there shouldn't be any to start with. If the bank agent or broker you are working with hasn't disclosed any and all fees, you need to find another agent. Be sure to read every page and ask multiple questions when you are going through your mortgage documents. I have run into multiple scenarios where clients have said they never paid any fees but when we read through their mortgage documents, it tells a different story.
The moral of the story, stay vigilant and know what you are signing.
3. My family member/friend went through a broker and didn't pay for XYZ fee. Why am I paying for it?
In these instances, there are only 3 possibilities. One, your friend/family member really didn't pay those fees due to the circumstances of the mortgage. Two, they paid the fee and didn't realize it. Or three, the fee was covered by your broker or the lender.
We'll start with the first possibility that the person didn't pay those fees. In some instances, this is entirely possible. If you don't need a full appraisal or are with an A lender, you might not have as many fees as someone who is with a B lender and needs a full appraisal with rental market rents. No two deals are the same and so you and your friend's deal will be different.
Second, a lot of people pay fees and don't always realize it or it is an insignificant charge so they forget about the fee. For example, if your appraisal was $500 but your mortgage is $750,000, adding that $500 onto your mortgage is insignificant. When closing with your lawyer, you don't always notice all of the fees because of the large dollar amounts and this is probably why they think they didn't pay any fees.
Third and finally, the person might not have paid those fees. There are certain circumstances when lenders have promotions to cover transfer/appraisal/legal fees and or the broker is willing to cover those costs. In these instances, the borrower is fortunate to have been able to purchase a home at the right time and or were loyal customers and the broker wanted to reward them. This is where we all can relate to someone who was loyal to us and we wanted to help them because of it. More likely than not, if you are on your second or third transaction with a broker, they will be willing to find you the best deal or cover some fees out of their own pocket.
At the end of the day, when discussing fees I always go back to the famous Warren Buffet quote, "Price is what you pay, value is what you get". In other words, if you were buying your child a bike and you could get one for $100 or a different, better bike for $200, you might be more inclined to go for the cheaper option. In most cases, that $100 bike will break after a year and you'll be going back to the store and will have to buy another $100 bike. Sure, you'd be down $200 total in either scenario but is the headache worth it?
The same goes for mortgage brokers and any service provider for that matter. Sometimes, the free choice isn't always the best one.
Questions/Comments?
Give us a shout in the comment section or find our contact details on the main page of our website at www.triedandtruemortgages.ca
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