How your Mortgage Broker Gets paid and how it works against you

Background:

A mortgage broker is the middleman between the lender and you, the client. A mortgage broker only gets paid when the he/she is successful in getting the loan and the client accepts the loan

 

 

A mortgage gets paid more when you borrow more!

The mortgage broker will attempt to get you to borrow as much as possible. He may say something like "Why don't you borrow more, since the interest rate is so low?" In some cases, if you do have other debt or is looking to make large purchases, it is better to borrow using your mortgage if it is indeed the lowest interest rate. However, whenever you borrow, you may have to pay more fees such lawyer fees are higher and if you break out of the mortgage, the penalty fee is also higher.

 

Only borrow what you are going to use and not anymore.

 

A mortgage gets paid more if you borrow for longer.

The mortgage broker will tell you to go with the longest possible commitment like the five year standard as they claim. He may say something like "Make your mortgage commitment five years or ten years so that you don't have to worry about renewing" or "Five year Fixed rate is the standard. Everyone uses this standard" Five years is the standard for variable rate. Five years fixed rate is a scam. The longer you borrow, the more expensive it is to break out of. If rates go down, you get screwed.

 

Commit to the shortest possible period given the lowest interest rate.

 

A mortgage broker gets paid more if you go with Fixed Rate instead of Variable Rate

Fixed rate is a scam. He may say something like "Interest may go up. Best to play safe."

Fixed rate is higher than variable rate and the chances of interest rate going down is the same chances of it going up. Fixed rate is often 2%-3% higher than variable rate. If you were to listen to your mortgage broker and go with Fixed rate, at five years. The chances of prime rate going up to 2% in 2-3 years is very slim. And even if it did, you would still be saving money! Prime rate would have to go up 4% over five years for you to break even!

 

 

The mortgage broker may want you to buy a used home over a prebuilt home.

Prebuilt homes often come with their own lenders with a guarantee approaval mortgage rate at lower than the mortgage broker can offer. Thus, the mortgage is afraid by going with prebuilt homes, you will no longer use their services. Your mortgage broker may say something like "Used homes are sturdier and visible so that you can see it. They can also be a better investment."
The truth is, prebuilt homes often go higher in value faster than used homes. Prebuilt homes also come with warranty required by the government that the house must be free of defects for a year. Used homes offer no such warranty.

 

 

Bottom Line:

You, the client and your mortgage starts off with a mutually beneficial relationship where you want a mortgage and the broker wants to be the one to give it to you. But that's where the mutual benefit ends. For the mortgage broker to get paid more, he needs you, the client, to lose more. He needs you do things that will simply cost a lot to get the mortgage. You need to rely on yourself or someone else that is not going to benefit from your loss. In conclusion, you need to know what kind of mortgage you are looking for. Don't ask the mortgage broker because he will only look for a mortgage lender that pays him the highest commission.

 

If you have any questions or concerns, post them below...

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