Two Ways to Arrange Your Mortgage
This question sounds simple to answer, but it is really difficult to choose when there is so much mis-information in the marketplace. This short blog article is to demystify the mortgage arrangement services.
Years ago, homebuyers would go directly to the bank for their mortgages. There were not much choices for consumers. Historically, mortgage brokerages were an insignificant player as a financial intermediary and mortgage brokers arranged mortgages only for those who could not obtain mortgages from the main street banks. The borrowers were either self-employed or people with low credit scores. Regular banks did not service these groups of borrowers. As a result, mortgage brokers represented some non-bank lenders such as a trust company or a private lender and acted as the bridge between lenders and borrowers.
However, for the last ten years, this situation has changed greatly. Currently, mortgage brokerages not only represent non-bank lenders, but also arrange mortgages for the major financial institutions (i.e. major banks). With unique operational structures and relatively low operating costs, these brokerages have won a considerable market share. In a recent study released by CMHC in 2010, 45% of first-time homebuyers chose mortgage brokers for arranging their mortgages. 39% of all homebuyers used mortgage brokers. The market share for mortgage brokers has been on the growth side since 2006.
The majority of these mortgages arranged by mortgage brokers eventually landed with the major banks. A consumer may then ask the question whether to go with a broker or directly to the bank. The first right question to ask is really what mortgage you choose, not which lender to pick. The deciding criteria should be the product features and pricing, objectiveness and service levels.
The following chart attempts to compare the services from banks and mortgage brokerages:
| |
Banks |
Brokerages (e.g., Valueland) |
| Source of mortgage funds |
- Your deposits at the bank
- Investors’ money, or
- Securitization
|
- Funds from banks
- Non-branch banks/lenders
- Private lenders
|
| Operational cost structure |
- Large branch network
- Expensive corner properties
- High cost employees and operation
|
- Optimized mortgage process
- Low cost organizational structure
- Linkage of service and income
|
| Independence |
- Only market and sell its own bank mortgages
|
- Represent multiple products from various lenders
- Encourage competition among banks/lenders
- Choose the best suited mortgages for clients
|
| Professionalism |
- Employees are generalists
- Mortgage is only one part of their multiple duties
|
- Specialized in mortgages only
- Licensed by governments
- Do not sell other financial products
|
| Service hours |
- 10 am – 4 pm (standard bank hours)
- You are at work too!
|
- Can work with clients’ hours
- Some work on Saturdays & Sundays
|
Let me ask you another question. When you need to travel, where do you get your airline tickets? You do not go directly to the airline companies. Instead, you go to a travel agency (or its website) to book and buy your air tickets. Similarly, you get your mortgages from a mortgage brokerage that offers you better deals and un-biased service. Independence and multiple choices are the two most important benefits you get from your mortgage brokers.
Martin Shao is the President of Valueland Mortgages. Forward your mortgage questions to AskUs@valueland.ca or visit his website http://www.valueland.ca |