Many people know that when you use a mortgage broker in Toronto, there is no fee to the homeowner or the homebuyer. The lenders the broker works with will supply them with commission for drumming up some business for them; and the customer still ends up getting the best rate. But do they? What about objectivity bonuses? This is a question that Bruce Sellery, author of Moolala and host of the TV show “Million Dollar Neighborhood” has recently given some thought.
Before you can decide whether or not volume bonuses are fair, you first have to know what they are. When brokers work with lenders, they’ll typically receive a commission that can range from 0.50 per cent to 1.20 per cent – depending on the type of mortgage and what the lender offers at the time.
These commissions are important to understand because every lender offers them (although they may be slightly different percentages at each lender.) Because every lender offers them, and because mortgage brokers only work for the client, brokers can then be objective when selecting packages to show their clients. Mortgage brokers, unlike banks, aren’t only there to push one or two products on their clients. Instead, they’re there to show their clients what’s available on the current market (everything that’s on the current market) and help their client make the best choice for them.
So what about volume incentives?
Volume incentives are bonuses that are given to a mortgage broker in addition to their commission. A lender will bring an offer to a mortgage broker in which the broker will receive additional money or commission once they’ve brought a certain number of mortgages to a lender. So after a broker secures 25 mortgages for TD Bank, they may get a volume bonus or incentive.
It’s these incentives that have come heavily under fire lately, with people saying that they take away a broker’s objectivity. After all, why wouldn’t they recommend that a buyer or homeowner take on a mortgage with a specific bank? Especially if that broker is only one or two mortgages away from collecting that volume bonus?
For the same reason that brokers can hang onto their objectivity even when collecting any kind of commission from lenders. Because all lenders do it. All lenders, or most of them anyway, offer some kind of volume incentive or bonus to their brokerages. So a mortgage broker then, isn’t really getting anything they can’t find somewhere else, just by suggesting a package that will get them closer to their volume incentive.
There’s one other time that lenders will offer volume incentives, and that’s when it comes to defaults. Of course, lenders don’t want to work with untrustworthy borrowers, or those that won’t repay their loan in full and on time. Because of this, lenders will also offer volume incentives to brokers after a certain amount of mortgages avoids going into arrears. This is to promote good, healthy loans; and it also gives the broker incentive to fully verify that the borrower is qualified for a loan before finding mortgage packages for them.
Yes, volume incentives or volume bonuses are things that mortgage brokers receive in Canada. However, just like the commission a mortgage broker is paid, these incentives do not affect a broker’s objectivity.
When you need an equity loan, home refinancing, or any other mortgage product, go see a mortgage broker. They’re the only ones who can get you the best deal on your mortgage – even if they receive a volume bonus for it.
