Editor’s note: This article was originally published on April 24, 2013 and was updated on November 30, 2015.
One of the questions we're most often asked in both the mortgage business and insurance business is, "Why should I use a broker? Why shouldn't I just go straight to my _______(bank or insurance company)?"
It's a fair question. After all, isn't going direct to the source always better? Can't you save money that way? Why involve a "middle man"?
"Why should I use a broker? Why shouldn't I just go straight to my _______(bank or insurance company)?"
Personally, I think it's a perfectly legitimate question. After all, who doesn't like to save money? Who doesn't want to save time? Maybe in some cases it really can be better to go straight to the factory - like buying furniture, or software, for example. Believe me - I'm as frugal as it gets and if I have a chance to get a deal on a piece of technology or whatever I'm looking for, I take it.
Who is On Your Side?
Here's the concern I have with that approach when it comes to dealing with your financial affairs:
- Who does the employee of the lender or insurance company report to? What is their responsibility to you, and what is their responsibility to their employer? Whose side are they really on?
- What happens if something goes wrong with your transaction? Is there anyone who will stand up for you and hold them accountable? Someone who knows how they operate?
Ok - Does it Really Go Bad?
Short answer? Yes. Here are two examples:
- One of our client couples were building a home. Initially the plan was for them to keep their current property, which prevented them from putting 20% down on the new home. This required CMHC insurance to the tune of $21,000. At about 75% complete the couple decided to or were able to sell their current home, which freed up additional cash for a down payment. Fantastic news! Except for the fact that the lender we were dealing with insisted that there was no way for them to obtain a refund on the insurance premiums. We contacted CMHC who indicated that yes, in fact, they could obtain a refund, but the bank had to request it. We fought with the bank for four weeks (in spite of the fact that it would have no effect whatsoever on our compensation, which had already been earned) and were finally able to obtain the refund for our client. The total savings to them was over $14,000 in cold hard cash. Had they gone directly to their bank would they have had the same good fortune? How much did we save them in legal fees?
- MortgageBrokerNews.ca details an account of a woman who nearly lost her home after becoming disabled and how the sharp eye of her Realtor noticed that she actually had purchased disability insurance which would cover her payments. The bank ended up issuing a refund of nearly $24,000 and shut down the foreclosure process. This poor woman had been going to her bank for five years and claims nobody asked her if she had insurance coverage with them. This is another example of how it helps to have someone in your corner and watching your back.
As Brokers we have a legal responsibility to act in your best interest - it's called Fiduciary Duty.
So What Have We Learned?
In my history as a Mortgage Broker, I've come to value even more the advice and expertise of trained professionals. As Brokers we have a legal responsibility to act in your best interest - it's called Fiduciary Duty. Unfortunately the people who work at the banks or insurance companies do not have the same duty of care, and it often shows.
- Work with a licensed professional broker who demonstrates that they truly care about your well being and is willing to go to bat for you now and in the future.
- Make sure you have proper life and disability coverage when you borrow large sums of money. Here again brokers have access to more products and can usually offer more complete coverage. Your lender's creditor policy often has significant restrictions, consult an independent professional to be sure.