People are often reluctant to ask a mortgage broker how they get paid, which is understandable and entirely unnecessary. In British Columbia the answer is not optional information you have to prise out of someone. It is a written disclosure the broker is required to give you before you commit to anything.
This page explains how brokers are compensated, what the law requires you to be told, and what to ask.
Who Pays the Broker on a Typical File
On most residential mortgages placed with a mainstream lender, the lender pays the broker. The borrower pays no fee to the broker at all.
The lender treats that payment as a cost of acquiring the mortgage, in the same way it treats the salary of a branch mortgage specialist. Placing your mortgage through a broker does not add a charge to your file and does not produce a higher rate than the lender would offer directly. The lender is paying for the origination either way.
That is the position on prime lending, which covers most purchases, renewals and refinances at banks, credit unions and monoline lenders.
What Changes on Alternative and Private Files
Where a file cannot be placed with a prime lender, the arrangement is different and the difference is disclosed to you before you proceed.
Alternative and private lending exists for borrowers a bank’s underwriting rules do not fit: self-employed income that the tax return understates, credit that has been damaged and is recovering, a property type outside standard guidelines, or a timeline no prime lender can meet. On these files a broker fee is common, and lender fees usually apply as well.
The important part is that none of it is a surprise. The fee, who is paying it and how much it comes to are set out in writing before you sign, and they are part of the total cost you weigh against the alternative of not getting the financing at all.
What BC Law Requires the Broker to Tell You
Section 17.3 of the Mortgage Brokers Act requires a mortgage broker to give the borrower a conflict of interest disclosure in the prescribed Form 10.
Form 10 covers any direct or indirect interest the broker has or may acquire in the transaction, and any interest held by a party related to or associated with the broker. Where an interest has a monetary value, BCFSA requires it to be expressed as a dollar amount rather than described in general terms.
BCFSA’s guidance is specific about what counts. Compensation received for arranging a mortgage with a lender is disclosable, and so are benefits beyond base compensation, including volume bonuses and marketing allowances.
So the disclosure is not a formality about whether a fee exists. It sets out what the broker is receiving and from whom, in dollars, before you are committed.
Anyone arranging mortgages in British Columbia must be registered with the BC Financial Services Authority, and registration can be confirmed through BCFSA’s public register.
Volume Bonuses and Whether They Skew the Advice
Lenders pay brokers a base commission and, in some cases, an additional bonus tied to the volume of business the broker sends and how much of it stays on the books. This is a reasonable thing to want to understand, and it is disclosable for exactly that reason.
Two things keep it in proportion. The differences in compensation between prime lenders are small relative to what a mortgage costs a borrower over its term, so a rate or a term that suits you poorly would cost you more than any compensation difference could be worth to a broker. And a mortgage placed badly comes back at renewal, which is where a broker’s business comes from.
The question to ask, if you want to ask one, is simple and fair: why this lender rather than the others, for this file. A broker who can answer that in terms of your circumstances is giving you the reasoning behind the recommendation.
What a Broker Does for the Compensation
- One application, assessed across a lender panel. Banks that lend through broker channels, credit unions, monoline lenders and alternative lenders, from a single set of documents and one credit enquiry.
- Choosing the lender to fit the file. On straightforward applications this is about rate and terms. On complicated ones it decides whether the mortgage is approved at all.
- Structuring the application. How income is presented, which property details matter and which lender’s guidelines the file is built to meet.
- Working the file through underwriting. Conditions, appraisals, solicitor instructions and the chasing that closing on time requires.
- The terms, not only the rate. Prepayment privileges, penalty calculation methods, portability and assumability differ between lenders and cost money the day you need them.
- After funding. Renewal timing, and the escalation contacts that resolve a lender error faster than a borrower calling a general line can.
Questions to Ask Any Broker
- How are you compensated on this file, and by whom
- Will I pay any fee directly, and if so how much
- Which lenders did you consider, and why this one
- How is the prepayment penalty calculated on this mortgage
- What are the prepayment privileges, and what happens if I sell before the term ends
- Are you registered with BCFSA, and under which brokerage
Broker Fee FAQs
Does using a broker cost me more than going to a lender directly?
On prime lending, no. The lender pays the origination cost whether the mortgage comes through a branch or a broker, and the rates available through broker channels are frequently better than posted branch rates rather than worse.
Do I pay anything up front?
On a standard prime file, no. Where a broker fee applies, it is disclosed in writing before you commit and is generally payable at closing rather than in advance.
Is the broker working for me or for the lender?
The broker arranges the mortgage on your behalf and is paid by the lender that funds it. That is why British Columbia requires the Form 10 conflict of interest disclosure, so the relationship and the compensation are visible to you rather than assumed.
What if I want to see the compensation in writing?
You should receive it in writing as a matter of course. If you have not, ask, and expect a dollar figure rather than a description.
How do I check that a broker is registered?
BCFSA maintains a public register of mortgage brokers and sub-mortgage brokers in British Columbia, and it can be searched by name.
For a straightforward answer about what your mortgage will cost and how the compensation on your file works, contact Michelle Scheibel at My Kelowna Mortgage. She is registered with the BC Financial Services Authority and has been placing Kelowna mortgages since 2008.