In the last couple of years there has been a lot of coverage in the financial press about mortgage brokers. Despite all of the positive exposure in business publications, there still seems to be a lot of confusion about from consumers about how this service works.

Mortgage brokering or mortgage consulting is not a new industry, but it is an industry that has been experiencing explosive growth over the last five to ten years. As it stands currently, approximately 18% of all mortgage business in Canada is originated through mortgage brokers. While this figure that represents billions of dollars in mortgages seems impressive, it is next to nothing when you consider that in the United States more than 65% of mortgages are negotiated by mortgage brokers.

In the past mortgage brokers used to be used by individuals who may not have been able to get credit through other channels. They would arrange hard-to-qualify mortgages for a fee. Today this is not the case. The number of mortgage brokers who work on hard to place mortgages is now only a very small portion of the market. Today the mortgage brokers or mortgage consultants prefer to spend their day getting paid finders’ fees from financial institutions that are hungry to service the mortgage needs of the average consumer. In addition to searching out the lowest rate, mortgage brokers now focus on showing consumers how to become mortgage free quicker, how to decide between terms, conditions, and how to crunch the numbers on the many mortgage gimmicks in the marketplace.

How did this come to be you ask? This is not the mortgage market of ten or even five years ago. What most people don’t know is that there are over 100 lenders in Canada that would all like to have your mortgage business. Visiting the four banks in your neighborhood is not going to cut it any more.

One of the biggest differences between the person you may deal with at your financial institution versus a mortgage broker is that the broker works for you and not one financial institution. Henry Ford, one of the founders of Ford Motor Company, famously proclaimed that people can have any colour of Model T that they like – as long as it was black. This may be a good way to view a mortgage representative that works for one financial institution. The people who work for these financial institutions simply can not offer the level of variety that a consultant or broker can.

While the manager at a financial institution bases their bonus and salary based on the profitability of the products and services of their branch, a mortgage broker or consultant builds their business on knowing where to get competitive rates and by providing value added service. Some of the bigger mortgage brokers in Toronto single handedly arrange more mortgages than many entire branches.

How do they get these rates? One of the advantages that the mortgage broker has is access to volume discounts that the consumer typically doesn’t get. If a mortgage broker sends two million dollars worth of business to a lender every month then that lender is going to make sure that they do what they can to keep the relationship strong. The financial institutions do not have to gather the paperwork, pay a salaried employee, or maintain an expensive branch infrastructure. By using mortgage brokers to generate mortgage business they only have to pay the individuals that are producing deals. Really it is a win-win situation for all those involved.

As the Canadian economy increasingly copies the strengths of successful products and services from the United States, I truly believe that the growth in this industry is only just beginning. Still I would like to bring up an important point – like any industry, the cream rises to the top. Make sure you select the right financial professional to help you make your mortgage decisions.

Until next time – happy home and mortgage hunting.

Calum Ross is one of Canada’s top ranked mortgage advisors. He has appeared on Canada AM, Investment Television, Report on Business Television, City TV, is an industry speaker and mortgage columnist. He holds both a B.Comm and MBA in Finance.