Mortgage brokers are increasingly sought after by applicants for the acquisition of real estate. Simplicity, the promise of obtaining a lower mortgage rate, and especially the amortization of the broker’s fees over the duration of the mortgage are the three main arguments behind this enthusiasm.
As a result, clients of mortgage brokers believe they are getting the best rate for their mortgage without having to pay anything. However, personally, I do not understand this generalization of using mortgage brokers.
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The service offered by mortgage brokers seems particularly expensive to me, and above all, the idea that they would obtain a better mortgage rate seems to be an unjustified sales argument.
What is the business model of mortgage brokers? What is the cost of their service?
A mortgage broker is only paid if financing is obtained through them. Thus, the mortgage broker is an intermediary who will be compensated as a percentage of the credit obtained.
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In fact, there are two types of mortgage brokers:
- Online mortgage brokers who are paid by banks only in the amount of 1% of the loan. For a loan of €200,000, the bank pays them €2,000 in commissions. Online mortgage brokers, like the service we offer with our mortgage comparison tool, are free for the borrower; the broker will only be compensated if the financing project is successful thanks to their intervention.
The remote service of this online mortgage broker is limited to connecting with the bank that will offer the lowest rate according to the borrower’s profile. The online mortgage broker then simply collects the documents of the financing file that they will send to the selected bank.
The prospective borrower will then need to make an appointment with the bank to finalize their mortgage file.
The mortgage rate and financing conditions will be known before the meeting with the bank.
- Mortgage brokers in agencies who are compensated both by the bank for an amount of 1% of the mortgage, but also by the borrower for an amount of 1% of the mortgage. In total, the mortgage broker in an agency thus costs twice as much as the online broker, and above all, the loan applicant will have to pay 1% in fees for this service (and even if the payment of these fees is added to the mortgage amount, you still have to pay them).
In short, in the best case, the online mortgage broker will cost you nothing directly because it is the bank that will pay them… This service seems very relevant to me and will allow, at a lower cost, to be put in touch with a bank that will offer competitive mortgage rates.
The main interest, in my humble opinion, is to avoid wasting time meeting with a bank whose rates would not be competitive. This is a significant time saver, but it should not prevent you from meeting several bankers suggested by your online broker to negotiate your mortgage as best as possible.
On the other hand, using a physical mortgage broker is a service that comes at a significant cost. Everyone will need to ensure they are ready to pay €1,000 or €2,000 to avoid having one or two meetings with a banker! In my humble opinion, that’s an expensive appointment 😉
ps: These mortgage broker fees could even prevent you from obtaining your mortgage due to excessive usury rates, as we explain in this article “Does the refusal of mortgage credit for exceeding the usury rate block the real estate market?”
Does the mortgage broker really allow you to obtain the best mortgage rate?
It is a magnificent urban legend orchestrated by the marketing services of mortgage brokers: No, rates are not lower when going through a mortgage broker.
Every month, mortgage brokers receive the rate scales from the banks with which they have a contract. These scales actually have lower rates than the “standard” scales communicated to the bank’s customer advisors. Nevertheless, the negotiation margin is not the same!
In the end, the rates offered by the bank are the same with or without a mortgage broker.
Indeed, the standard scale in the hands of the customer advisor may initially seem less favorable than that proposed by the mortgage broker.
However, the rate scale of the customer advisor is an indicative scale before negotiation: The branch manager, the sector manager, or the regional loan manager each have a level of delegation allowing them to deviate from this standard scale.
The use of a mortgage broker, whether online or in an agency, simply avoids the initial levels of delegation and allows obtaining a competitive rate more quickly than the bank advisor could obtain without the agreement of their hierarchy.
In the end, the rates offered by mortgage brokers are not lower than the rates that could be negotiated directly by the borrower.
The question remains the same: How much are you willing to pay to avoid taking the time to have an appointment with your banker?
What if using a mortgage broker even led to a higher cost of the mortgage?
The prospective borrower who wishes to use the services of a mortgage broker will have to sign a brokerage mandate in which the broker is asked to find the financing best suited to their needs.
Not only does the broker not commit to finding the lowest mortgage rate, but they only commit to the average obligation of obtaining a mortgage.
The important question of borrower insurance does not concern the mission of the mortgage broker.
Borrower insurance (see “borrower insurance comparator”) represents, however, a significant part of the cost of your mortgage that will not be negotiated by the mortgage broker. The mortgage broker may even receive instructions from the bank: The obtaining of the mortgage rate will be subject to taking out a collective loan insurance offered by the bank.
The mortgage broker, who must maintain a good relationship with the bank, must ensure that their client takes the borrower insurance offered by the bank. Some banks even go so far as to grant a certain percentage of borrower insurance delegation: The broker will only be able to offer a few loan insurance delegations during the year.