Many people may not realize it, but two things are important to know about home loans (Intelligence Hypothécaire).
1) Mortgage brokers get their commission based on the size of the mortgage, not on the interest rate and
2) Brokers frequently channel all loans to one lending institution to get a volume benefit.
You probably wonder how a mortgage broker (Intelligence Hypothecaire) is paid, since you do not pay him. You are right to be curious, because it is critical to know the motivation of each party to a transaction so you can better understand issues such as conflict of interest, etc.
Brokers have to earn fees and commissions, just as the other professionals you work with, but they are paid by the bank that they place the mortgage (Intelligence Hypotheque) with. This payment is based only on the size of the loan, not on the interest earned on the loan. A $200,000 loan will earn twice as much in commissions as a $100,000 loan.) So there is no reason for the broker to increase the rate, and he has no control over the size of the mortgage.
Outside of a few special situations, the broker cannot change this arrangement. These are the circumstances in which the fee will change depending on certain criteria:
-The length of the term of the mortgage- hypotheque
-Some variable mortgages
-The length of time the mortgage rate is guaranteed for.
Therefore, the interest rate is not a determining factor for the fees of the mortgage consultant - courtier hypothecaire . This is different from some of the bonus plans that banks have for their employees. (See “Will my bank offer a better rate than a broker?” to understand this better).
Brokers can, however, improve their fees by working with one bank. Lending institutions frequently offer special programs whereby a broker will earn additional commission based on the volume of home loans he brings to the bank. It is an important amount, ranging from 20% to 25% over the original fee.
A plan like this will only appeal to smaller brokers, since large brokers meet the volume discount levels quickly. A broker like Mortgage Intelligence who typically generate more than $8 billion in loans (for example $8.1 billion in 2005) or Multi-Pret/Mortgage Alliance who generates over $5 billion ($5.3 in 2005) are not guided by volume programs, and can choose any lender they please.
What does this interesting information teach us about negotiating our mortgage through a broker? Number one, that brokers make their commissions only through the size of the mortgage, so differences in interest rates are not going to affect them and number two, dealing with a large mortgage consultant will increase the number of banks that your loan will be presented to, since large brokers have no incentive to stick with one bank in order to obtain a volume bonus.
