With the importance of real estate in Canada, it is vital to understand how the various professionals in the sector operate when buying a home.

Sooooooo… what is the difference between a Mortgage Specialist & a Mortgage Broker? At the surface they sound the same
• They both arrange mortgages
• They both can offer advice and help you select a mortgage, right?

WRONG!!! There are many differences… Let’s check some of them out!

• A Mortgage Broker works for you! Their role is to act as a link between you and the lenders so that you do not have to spend your valuable time learning about mortgages and shopping around for the perfect mortgage. Mortgage brokers do the legwork and negotiate on your behalf for lenders. They are your point of contact for everything related to your financing your home.
o Bank specialists are employed and paid by the bank and work on the bank’s behalf.

• A Mortgage Broker can work with many different lenders across Canada, rather than working for one financial institution. Therefore, Mortgage Brokers can offer you more choices with competitive rates and terms including: Big banks, Credit Unions, Trust Companies, Monoline Lenders (broker only banks) and private lenders.
o Usually Mortgage Specialists only have access to their lender’s products. In a typical situation, homeowners could end up with a higher interest rate than other institutions. This occurs because the homeowner must negotiate for themselves and Mortgage Specialists are usually paid according to the rate they sell you.

• A Broker must successfully complete a Provincially regulated Mortgage Broker course and exam. (In BC, Mortgage Brokers must be licensed by FICOM) They continue to maintain their good status to keep that license by taking professional development education courses.
o Bank specialists are not licensed and require no formal training. There are no standards for educational requirements (although most Lenders do provide some in-house training).

• Because Mortgage Brokers don’t work for a specific lender, you get impartial advice about a variety of lenders
o A bank specialist can only offer their own institutions products, good or bad.
o Specialists don’t have access to other lenders, so they won’t recommend another lender’s product offerings.

• Mortgage Brokers use their knowledge and experience to negotiate the best possible terms and rates for you from a variety of lenders, based on the best fit for your situation.
o When you see a bank specialist, the mortgage negotiating is typically left up to you.
o Will the bank specialist negotiate on your behalf or the banks?

• For conventional financing, the services of a mortgage broker are generally FREE to you. If there is a cost, you will be advised of those costs up front. Brokers get a finder’s fee from the lender once they place your mortgage. Therefore, brokers are motivated to get the best terms and rates for their clients.
o Bank specialists are paid by the bank
o Some banks offer bonuses if specialist gets their client to pay higher interest rates or sign up for other bank services.

• Mortgage Brokers work on a referral basis and are self employed. Most of their business is done through word of mouth referrals, therefore a Dominion Lending Centres Mortgage Broker is motivated to ensure their clients are extremely happy and satisfied to keep their business growing.
o A bank specialist is generally an employee of the bank, generating business through the bank’s existing customers.

• Most Mortgage Brokers are available for appointments outside banking hours (nights, weekends) at their client’s convenience.
o Bank specialists are generally only available during regular banking hours.

• Mortgage Brokers are focused on your mortgage
o Specialists are trained and rewarded on cross selling. Some will push you to consolidate all your banking services with them when getting a mortgage (credit cards, insurance, RRSP, lines of credit, etc.)

Would you ask Tim Hortons who makes the best coffee and expect them to say Starbucks? Not likely…  So why would you ask a Mortgage Specialist who works for a bank, to tell you which Lender has the best mortgage product for your situation.

The Canadian mortgage market used to be very simple. We had the big banks, credit unions, and trust companies.

However, almost 20 years ago, the Canadian government made three major changes to the Canadian mortgage industry. First, the government and CMHC put their weight behind Canadian mortgages by guaranteeing an insurance payout to lenders in the event that a borrower does not pay. Yes, the Canadian taxpayers are on the hook if CMHC goes under.

Second, Canada also began to allow lenders to pay for mortgage insurance for their borrowers, even though the insurance was not required. Borrowers would not know that their mortgage is insured, rather the lender would pay for, and insure the mortgage on the “back end” in order to make the mortgage less risky. I.E: if the borrower did not pay, the insurer would pay the lender (just as they would pay if the borrower had less than 20% down payment and was charged for insurance themselves).

And third, Canada allowed its lenders to bundle up their mortgages and sell them to investors. The securitization of mortgages (the process of taking the mortgages and transforming them into a sellable asset) allowed investors to purchase many mortgages at once, knowing there would be a specific return. The return here would be just less than the interest rate on the various mortgages (less because the lender has to make a little bit of money for creating the mortgage bundle or security).

Now, mortgage investors are looking at two things: investment return and mortgage risk. The lower the risk of an investment, the lower the return an investor may be willing to see. Because Canadian lenders can insure their mortgages against default (non-payment), investors are very keen on purchasing these mortgages. Thus, investors provide lenders with a lot of inexpensive money to lend out, which in turn, provided for better interest rates for borrowers.

As an aside, an example of investors may be one of Canada’s large banks, an American bank, pension funds, and/or other financial institutions.

The result was the emergence and major growth of mortgage finance companies, called wholesale lenders or monoline lenders.

Monoline lenders, encouraged by access to cheap capital, set up efficient mortgage underwriting (approval) operations and were able to provide flexible mortgage products and better-than-the-banks interest rates for their clients.

The overwhelming majority of wholesale lender mortgages are back-end insured by the lender, packaged up, and sold to investors.

What is interesting here is that wholesale lenders will insure mortgages transferred from one institution to another – something that banks do not do. This allows for better interest rates when renewing with a wholesale lender than if renewing with your current bank lender.

If you have any questions related to mortgages, contact your Dominion Lending Centres mortgage professional today.

Written by Eitan Pinsky