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Mortgage brokers do well matching clients with suitable mortgages

Canadians who are in the market for a home mortgage but unsure of the best mortgage available to them can take comfort in knowing that the country’s mortgage brokers are, for the most part, doing their jobs. The body that regulates mortgage brokers, the Mortgage Broker Regulators’ Council of Canada (MBRCC), had made mortgage suitability a priority for the industry, and recently conducted a survey to find out how brokers were doing on that score. The regulators concluded that most brokers were in fact working to direct their clients toward suitable mortgages.

The reason the mortgage regulators made suitability a priority is the “devastating” consequences that can ensue when borrowers are given unsuitable mortgages. “We’ve seen national economies around the world suffer when too many households are stuck with unsuitable mortgages,” the MBRCC statement says. Mortgage brokers have an important role in making sure that Canadians do not get stuck with unsuitable mortgages.

What is a suitable mortgage? The MBRCC defines the concept to include three key features: the appropriateness of the mortgage to the borrower’s needs; its affordability for the borrower; and its being the best product available to the broker.

Part of the brokers’ role may also be to help educate their clients in financial literacy. This means having “the knowledge, skills and confidence to make responsible decisions.” In short, does the borrower understand what he or she is undertaking in acquiring a mortgage, and is that decision appropriate to the borrower’s circumstances? Does the borrower understand the terms and conditions of the mortgage under discussion, including how the payments will work and what options exist for making additional payments?

The general view was that mortgage brokers are responsible for educating their clients about mortgage products, particularly with respect to the product option(s) available and the recommended product. In addition, stakeholders felt the terms and conditions of a mortgage should be discussed. For example, how their payments work, the term or amortization period of a mortgage, the effect of making additional payments or increasing your regular payment amount and penalties.

Mortgage Broker Regulators’ Council of Canada

What should you expect from a mortgage broker?

According to the MBRCC’s benchmark, consumers seeking a mortgage should expect to discuss the following matters, not necessarily in the following order, when working with a broker.

Client Expectations The mortgage broker and the client should reach a common understanding of the products and services that the client expects to be provided.

Disclosure to Client The consumer should be provided with the range of products and services that the mortgage broker can offer, including disclosure of who the mortgage broker is representing, the mortgage broker’s experience, knowledge, mortgage lenders available and potential conflicts of interest.

Fact Finding If a consumer asks for product recommendations or professional advice, the mortgage broker should obtain relevant information about the client’s life stage and available funds, their short- and long-term plans, risk tolerance, past experience and knowledge of mortgage products as well as any early payment penalty issues.

Needs Assessment The mortgage broker should identify the client’s mortgage financing needs, based on the information gained.

Recommendations and Advice Based on the needs assessment, the broker can recommend the types of available mortgage products. The information includes the potential sources of funding.

Preparation of Mortgage Application Once the mortgage recommendation is accepted, the broker will require the applicable documentation—client identification, credit information, verification of income, proof of down payment and a purchase/sale agreement. The broker will then submit all relevant documents to the lender.

Cost of Borrowing Disclosure When the conditional commitment is given by the lender, the mortgage broker must prepare the Cost of Borrowing (COB) disclosure form, including penalties for late payment or early payouts, as well as prepayment privileges and disclosure fees.

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