For many Canadians, purchasing a home is the biggest financial decision they will make in their lives. And for many of them, that decision involves seeking out the expertise of a mortgage broker. Mortgage brokers are licensed professionals who are trained to help borrowers find and secure the best mortgage products and rates from multiple lenders. But how do mortgage brokers get paid for their services?
Mortgage brokers in Canada are typically paid a commission or finder’s fee by the lender once the mortgage funds. This means that mortgage brokers work on a contingency basis, meaning they don’t get paid unless they are able to successfully place a borrower’s mortgage with a lender. It’s a bit like working on commission as a salesperson – the broker’s compensation is directly tied to the value of the transaction they help facilitate.
So why do lenders pay brokers a commission? Lenders are willing to pay brokers a fee because they act as intermediaries between the borrower and the lender. Mortgage brokers save lenders time and money by handling the loan application process, sourcing mortgage products and rates from multiple lenders, and often performing a preliminary assessment of a borrower’s creditworthiness. This means that lenders don’t need to hire as many frontline sales staff, since they can rely on brokers to do the bulk of the work. In addition, brokers help lenders reach more potential borrowers, since brokers often work with clients who may not have considered a particular lender otherwise.
Mortgage broker commissions in Canada can range from 0.5% to 1.2% of the full mortgage loan amount. The exact percentage will depend on a variety of factors, including the type of mortgage, the length of the mortgage terms, and the individual broker’s experience and negotiation skills. However, the commission is paid directly by the lender to the broker, meaning that borrowers won’t receive a bill or have to pay the broker out of pocket.
It’s also worth noting that some mortgage brokers may split their commission with the brokerage firm they work for. This means that the brokerage firm takes a percentage of the commission as well. This split can vary from broker to broker and firm to firm, but it typically ranges from 5% to 25%. While this may seem like a lot of money, it’s important to remember that mortgage brokers do a lot of work behind the scenes to ensure that borrowers are able to secure the best mortgage products and rates.
Most mortgage brokers in Canada opt to receive an upfront commission once the mortgage closes. However, there are a few other commission structures that brokers may use. For example, some brokers may opt to receive a trailing commission, which means they receive a percentage of the mortgage payment each month as long as the borrower continues to make payments. This is more common with commercial mortgages or other long-term loans. Additionally, some brokers may charge borrowers a fee for their services, although this is less common in Canada than it is in other countries.