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How is your mortgage consultant –courtier hypothecaire- paid?

Working with a mortgage consultant (Intelligence Hypothécaire) is useful for a buyer for a number of reasons, and here we will talk about two of them. It is important to know that mortgage consultants are paid on the size of the mortgage, not the interest rate, and that they are eligible to receive added commission for volume transactions with one bank.

You probably don’t realize how a mortgage broker (Intelligence Hypothecaire) is paid, since you do not pay him. You are justly curious, because it is important to know the incentive of each party to a transaction so you can more readity understand issues such as conflict of interest, etc.

We all need to be compensated for our efforts, and mortgage brokers are no different. They are paid by the lenderfor placing the loan withthem. The amount of the home loan is what determines the commission the broker (Intelligence Hypotheque) will earn. The larger the loan, the higher the commission, (the fee on a $200,000 loan is double the commission on a $100,000 loan) not, the higher the rate, the larger the fee.

There are a few special situations where the fee can be increased. Certain factors can change the fee such as
1) the term of the mortgage hypotheque
2) certain variable rate mortgage products
3) the length of time the mortgage is guaranteed for

Interest rate does NOT influence the commission a mortgage consultant (courtier hypothecaire) will earn. So there is no incentive for the broker to find a higher rate for the borrower. This is in contrast to some bonus programs that banks offer their employees. (Read “Will my bank offer a better rate than a broker?” to learn more about this.)

There is a way brokers can increase the fees they earn and that is by doing volume business with one bank. If a mortgage consultantplaces all of his mortgages with one lending institution, after he reaches a certain amount, he will earn additional commissions, which can be substantial, frequently 20%-25% more than the standard fee.

Smaller brokers are induced to use this incentive, but it has no effect on larger brokers. Brokers such as Mortgage Intelligence, that processed over $8 billion in loans in 2005, or Multi-Pret/Mortgage Alliance with over $5 billion in originations easily reach the limit on all volume business, and so are not tempted to work with one bank.

What does this interesting information teach us about negotiating our mortgage through a broker? Number one, that brokers make their fees only through the size of the mortgage, so differences in interest rates are not going to affect them and number two, working with a large mortgage consultant will increase the number of lending institutions that your loan will be exposed to, since large brokers have no incentive to work with one bank in order to obtain a volume bonus.