When you talk to a mortgage broker, they will tell you that they can get you a better rate. The statement might appear biased but actually there is a lot of truth to it. In fact, the Bank of Canada actually put out a research paper that supports this assertion. Although the paper was published in 2011, the fundamental business dynamics have not changed significantly to make these conclusions invalid. Actually when I see the high renewal rates that are being offered, going to a mortgage broker for renewal is a must these days.
Below, I have summarized some noteworthy findings from the paper.
- Individuals facing financial constraints, such as those with low credit scores and minimal down payments, tend to be charged higher interest rates.
- Borrowers who use mortgage brokers typically pay a lower rate. Interestingly, this differs from the United States, where mortgage brokers lack fiduciary duties, often resulting in consumers signing less favorable contracts. In contrast, in Canada, the outcome is quite the opposite.
- Financially literate borrowers are likely to get better rate quotes regardless of whether they use a broker or not.
- Banks will give greater discounts to customers new to the bank than existing customers. You would think that they would value loyalty but it is quite the opposite.
That’s it. If you are planning to be an economist or if your local pharmacy has run out of sleeping pills, you can get a full copy of the report here: https://www.bankofcanada.ca/2011/02/working-paper-2011-3/
