First time home ownership, changing homes and buying new property is exciting. I would even say that we’re the most vulnerable we can be in the home buying process. Buyer beware for you might falling into a financial trap. We’ll be talking about mortgage brokers and some potential pitfalls that can leave us all with a big loan and more to ponder over. We’ll be shedding light on some ways mortgage brokers can rip us off.
But why would a mortgage broker rip me off ?
Primarily financial gains. This is the primary reason why mortgage brokers may rip one off. Mortgage brokers are paid by the mortgage providers in the form of a commission or a finder’s fee. The payment is hefty generally upwards of 0.5% of the full mortgage amount. In simple terms, the higher commission a financial entity pays, the bigger the commission of the mortgage agent.
Some ways a mortgage broker may rip you off
The Illusion of Low Rates: Irresistibly low interest that are too good to be true. But there might be more under the surface once you sign-up including additional fees or hidden charges. In Ontario, Canada, it is mandatory for brokers to disclose all applicable fees prior to signing the mortgage agreement. While the mortgage provider typically pays the broker their commission, you could also be asked for a fee. This can happen if the broker deems you a ‘non-prime’ client. Also, cancellation charges should you choose to not proceed with the mortgage can be levied. Buyer beware !
Commission-Driven Recommendations: While most mortgage brokers strive to provide their clients the best deals, there may be others who prioritize commissions over your best interest. Not all lenders pay equal and so, some brokers might push institutions that benefit them rather than the client.
Neglecting Full Market Exploration: Due diligence is key when it comes to investing. And it is key, when it also comes to finding the best deal for shopping mortgages. Mortgage brokers may limit your options in terms of visibility of what’s out there.
Pushing Unnecessary Products: Some financial products like mortgage insurance or add-on services may also be offered to you when you are working with a mortgage broker. In some cases, these products may be beneficial to you but it is important to assess if these products benefit the broker more than they do you. Also, if the product is something that is of benefit, is the price fair relative to what is offered in the market ?
Mortgage Fraud is Real
It is now common for brokers (and sometimes buyers) to commit mortgage fraud. This generally is misrepresenting facts on a mortgage applicable. The mortgage broker may or may not be a participant in this. The most common way that this is done is by falsifying income through pay-stubs or hiding existing debt. The buyer is generally looking to buy a property that may not otherwise be able to afford. If one is unable to qualify a mortgage on their current circumstances, it is possible that they would have difficulty making their payments too. You can read more about Mortgage Frauds in Ontario here.
Final Thoughts
So, how do you navigate this complex mortgage puzzle without falling victim to some of these malpractices ?
The first step would be do your own research before buying. Learn more about the current rates and the mortgage offerings by financial institutions. Then, when you have your first conversation with a mortgage broker, you will be prepared.
Then, you could speak to individuals who the mortgage broker(s) served or find references. You will need to evaluate legitimacy of those reviews too unfortunately. A recommendation for a mortgage broker from a trusted friend or family member would be great.
Ask the mortgage broker questions about feeds, terms, conflicts of interest and any hidden fees. Ask them about additional products that you should consider alongside the mortgage. This would help you gauge if your best interest is at heart.
Again, most mortgage brokers may be operating in your best interest but a home purchase is likely going to be your life’s biggest debt. It is important to understand the potential issues that lead to financial difficulty down the road. By asking the right questions and doing your own due diligence, you will be the most prepared to select the right partner in your home buying journey.