Mortgage Financing – How To Get The Best Deal

The Financialist • Issue 85 • January 2005
BY ALAN KOTAI

While it is important to make a wise home purchase, it is just as important to secure the appropriate type of mortgage at a competitive interest rate. The question is, how do you achieve the best competitive interest rate when there are so many mortgage options and so many financial institutions to choose from?

Perhaps through a mortgage broker.

Mortgage brokers have been around for a long time in Canada, but only in the past ten years have they been able to secure agency contracts with almost all of the country’s major lenders and distribute their lending products.

Rogers Group Financial began working with brokers in the mid-1990s as part of our financial planning process to assist you in establishing a mortgage or debt strategy that is integrated within the context of your overall financial plan.

The marketplace is changing, and that change can be good news for borrowers. With fierce competition among financial institutions to attract your business, it is now possible for the borrower to shop the marketplace for a mortgage, or to go through a broker.

What are the benefits of working with a mortgage broker?

• Market Survey and Negotiation

A broker is able to easily survey the market on your behalf. The broker will then discuss with you the specific offers from a shortlist of two or three financial institutions and take you through various illustrations to help you make an informed decision.

• Documentation

When you work with a broker, you will fill out the mortgage applications forms only once, and the broker will have other documents such as a home buyers plan redemption form and information about government programs to assist you in the process.

• Assistance

A broker will spend time explaining the different options such as a variable rate versus a fixed term mortgage. He or she will help you understand the various features of mortgages, for example, accelerated repayment, penalty calculations and early renewal/refinancing.

• Professional and Independent Advice

Mortgage brokers act independently and are not tied to any single financial institution or product. A broker’s primary focus is to negotiate with financial institutions on your behalf and place appropriate mortgages at the best possible rate.

• No Cost

There are no direct costs for this service! A broker acting as an agent for a financial institution is paid a commission from the institution with which they place your mortgage. When we refer you to a broker, he or she
will typically pay us a referral fee.

• Convenience

A broker is often able to complete the application and approval process by fax or e-mail. Or, if you need assistance, the broker can travel to a location that is most convenient for you, including to our office.

Why are financial institutions willing to pay a broker?

Because the broker is, in a sense, part of a "virtual" network that does not require the bricks and mortar to deliver products. The lender saves money, too. 

A Mortgage Case Study – Demonstrating "Price" Value of a Broker

While rate is the not the only factor to consider in determining which financial institution you place your mortgage with, it certainly is the most prominent feature of a mortgage. Here is an example of savings gained by using a broker. From a recent survey of 5-Year mortgage rates assuming a $100,000 mortgage, compounded semi–annually with a 25-year amortization:

* Assumes the average posted rate in the branch of a financial institution.
** Assumes you were able to negotiate a 0.5% reduction from the posted rate.

While it is possible for you to negotiate a rate that is as low as the rate a broker can negotiate for you, you may have to do a significant amount of work to demonstrate to a lender that you are credit worthy and deserve the best rate.

When you work with a broker, he or she does that work for you. By seeking approval through a number of financial institutions simultaneously, and letting these institutions know that they are competing for your business, the broker creates a "negotiating" position — and the institutions offer the best rate to secure your business.

Which financial institutions do brokers work with?

Typically, a broker deals with most of the big banks, trust companies, life insurance and finance companies.

Ancillary Products

A broker can assist in placing lines of credit for individuals and making financing arrangements for business owners.

How do we integrate mortgages into our advisory services?

We usually follow this process with you:

• Determine your financing or debt needs.
• Help develop a debt strategy – one of the most common questions we get from clients is, "Should I go with a variable or fixed term mortgage?"
• Introduce the broker to you personally.
• Work with the broker in articulating a mortgage strategy specific to your situation.

Recently our firm surveyed the mortgage brokerage business and interviewed a number of brokers. From those interviewed, we have created a shortlist of "best of class" brokers that we would work with in delivering this service to our clients.

How do you get started?

Contact your advisory team. They will give you more information on this service and help you integrate your debt strategy with your financial plan. They will secure for you the most appropriate mortgage at a competitive rate.