Whether you are buying a new home, getting pre-approved for a mortgage, or renewing or refinancing your mortgage, a mortgage broker can make your life easier in a variety of different situations! But how is this expert paid?
You may have heard that as a client, working with a mortgage broker will not cost you anything. In fact, this professional is completely free of charge for you! However, in order to make a living from their profession, they must receive a salary for their services. To ensure that your interests are always paramount, their compensation should not interfere with their role as an intermediary.
So, who pays the mortgage broker? How are they paid? How much do they earn annually? What is their commission percentage? Let's take a look at these questions so that you can learn more about mortgage brokers' salaries.
How are mortgage brokers paid?
Mortgage brokers, whether they are self-employed or work for a mortgage brokerage, are all paid in the same way. Their remuneration is in the form of a commission. This commission is paid by the financial institution when a loan is taken out with them through the expert.
Although the banks offer this commission, it is important to note that mortgage brokers work for you first and foremost, not for the lenders. They also have access to many suppliers (banks, credit unions, trust companies), which allows them to better negotiate mortgage products and rates for their clients' needs.
The mortgage broker's compensation is directly proportional to the efforts they make. It is their productivity, time invested, as well as the volume of transactions completed that will ultimately determine their salary. The happier their clients are with their services, the better it is for them. They therefore have everything to gain by working in their interest.
In addition to the commission received when a new loan is taken out (referred to as a finder's fee), the mortgage broker may also receive two other types of commissions:
- Follow-up fees may be offered by some lenders when the client stays with them for a period of time. These fees are usually paid in exchange for a lower initial commission.
- A renewal fee may be paid when a borrower renews their loan with the financial institution.
How much is a mortgage broker's commission?
The mortgage broker's commission can vary from lender to lender. In most cases, however, it is between 0.5% and 1.2% of your total mortgage amount. This commission is paid directly to the broker by the financial institution. You do not receive any invoices from your side.
Here's a look at how much a broker might receive for a $400,000 mortgage:
- 0.5% commission: $2,000
- 0.8% commission: $3,200
- 1% commission: $4,000
- 1.2% commission: $4,800
The percentage they receive will depend not only on the lender, but also on the type of mortgage you choose and the length of your term. For example, for a mortgage with a 5-year term, a mortgage broker could receive approximately 0.8% of the financing amount.
It should also be mentioned that a mortgage broker may also have to share their commission with their brokerage firm. In other words, the latter takes a portion of the broker's commission, generally between 5 and 25%, depending on the expert's experience and the terms negotiated with the firm.
Here's what the amount received by the mortgage broker, after splitting with his brokerage, might look like if he receives 0.8% commission on a $400,000 loan:
- 5% split: $3,040
- 10% split: $2,880
- 20% split: $2,560
How much does a mortgage broker earn?
The total salary of the mortgage broker varies depending on several factors mentioned in the previous points, such as:
- The percentage of commission received;
- The value of the mortgages that they manage to finance;
- The split with the brokerage firm they work for;
- The volume of funding approved through it.
That said, how much can a mortgage broker earn annually? According to digital platform Nesto, mortgage brokers reportedly earn an average of $100,000 per year. But this number can vary greatly depending on the actual situation in which they work.
Indeed, as in any other profession, income tends to increase with experience. It can also vary according to the time they devote to their profession (number of hours per day, evening, weekend), as well as the region in which they are located. For example, a broker working in Vancouver or Montreal will certainly earn more than a colleague working in Abitibi or in an Atlantic province, unless the latter redoubles their efforts.
Note that in 2017, the average salary for mortgage brokers was estimated at $62,000.
Let's take a few examples to better illustrate the many possible salary variations:
1. A broker who manages to make an average weekly commission of $2,000 would earn approximately $104,000 before any tax deductions.
2. A broker who earned an average weekly commission of $2,000, but had to share 5% of it with their firm, would earn $98,800.
3. A broker making $1,800 in commission per week, with a 10% split, would instead have an annual income of $84,240.
4. A broker who manages to earn an average commission of $3,800 per week, less 15% due to the brokerage firm, could earn nearly $168,000 per year.
Choosing a mortgage broker based on their salary: a good idea?
The mortgage broker's salary should, in truth, have little or no impact on your decision to work with them. After all, remember, their services are completely free for you. It is the bank you contract a loan with that will pay them the commission.
So, although it may be interesting to ask them about their salary during your first meeting to ensure transparency, this is not something you should insist on. Instead, here are some criteria to consider when choosing your mortgage broker:
- Their skills: what training do they have? Do they have the right to practice according to the AMF requirements? Are they undertaking continuing professional development courses to keep their knowledge up to date? How many years have they been practicing?
- Their availability: are they easy to reach? Do they get back to you when you leave a message?
- Their reliability: are they on time for their appointments? Are they organized?
- Their listening skills: do they answer your questions? Do they make sure they understand your needs and situation?
- Their honesty.
- Their professionalism.
In any case, remember that the most important thing when dealing with a mortgage broker is to feel fully confident. After all, it's the key to getting what will probably be the most important loan of your life.
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