We get asked this question a lot so I thought it would be a good idea to share the answer with everyone. For residential mortgages typically brokers are paid by banks and lenders. The longer the term you choose the more money a broker earns. A one year mortgage might pay a broker up to 0.50% of the financing amount whereas a five year mortgage might pay a broker as much as 1.10% of the financing amount. Not every bank pays the same amount and some pay more than others. As well, most banks and lenders will allow a mortgage broker to use a portion of their commission in exchange for providing a client with a lower rate (called a buy-down). Some banks allow brokers to earn points towards vacations, office equipment and other non-cash rewards. As a borrower it is important to know how your mortgage broker is compensated to ensure that you are getting the mortgage that best matches your needs. It is a very competitive marketplace with many brokers competing for your business so don't be scared to ask how your broker is getting paid.
On a side note, private mortgages do not follow the same compensation formula and can vary widely from broker to broker. For private mortgages the lender will charge a fee and a broker will either charge a separate fee or share in the lender fee. These fees can be as low as 1.0% of the financing amount and have no limit.
If you have questions about your mortgage or how your broker is being compensated, please email dylan@bridgecap.ca or visit www.bridgecap.ca/dylan
