How do mortgage broker comissions work in Canada?

May 28, 2010 3:58 PM

A 2-part question about mortgage brokers in Canada: How do their commissions work? How do they source their deals?

I'm studying the mortgage industry in Canada for a university project.

First:

I'm wondering how mortgage broker commissions work in Canada. I can't seem to find this information published anywhere, nor can my university's business librarian.

Specifically:

-- How much are the commissions?
-- Do they take the rate quoted to them by the lender and then choose how much of a profit margin to add on? Or are the commissions pre-set by the lenders?
-- How much do mortgage broker commissions vary from deal to deal?

Second:

I'm wondering exactly how a mortgage broker "shops" around for deals on behalf of a customer, and how they communicate with the lenders. Is there a special system for this? How does it work?

Thanks in advance!

posted by graytona to Work & Money (1 answer total)

In a lot of ways, the mortgage broker industry is similar to the insurance broker industry.

I've used a mortgage broker for my last 4 mortgage applications/renewals. You'll get more detailed, accurate answers by contacting several brokers directly (e.g. google 'mortgage broker canada' and check out contact information).

Commissions are paid by the financial institution to the broker for bringing them business. If a borrower flakes after agreeing to the details of a mortgage with an institution, he generally has to pay a fee which is roughly what the bank would have given the broker had the deal not fallen through. A particular broker will tend to give a lot of business to a few branches of a few institutions and get a good discount because of the volume of business involved.

The typical quoted rates you see on mortgage broker sites are for customers with good, established credit. Some brokers also work with borrowers with poor credit, and/or with non-institutional lenders. The broker does the credit check of the borrower's credit-worthiness and can use a single credit report to shop a loan around with several potential lenders.
posted by thatdawnperson at 6:01 PM on May 28, 2010