Here is some answers to frequently asked questions and excellent insight published by FSCO, the regulatory body for mortgage agents, brokers and brokerages in Ontario.
And NO, it does not cover your bank employees.. they are not required to be licensed or understand mortgages.
Using a Mortgage Broker When You Buy Your Home
Getting a mortgage is often the largest financial commitment Ontarians make and many homebuyers find that there are several benefits to using a mortgage broker or mortgage agent. Mortgage brokers/agents provide options and information to guide consumers through the mortgage application process. Some lenders will only work through brokers or agents.
What is a Mortgage Broker/Agent?
Mortgage brokers and agents are licensed professionals who work for a licensed mortgage brokerage and it is with the brokerage that you enter into a legal relationship. Mortgage brokers/agents can identify a large number of lenders and options for you, although many work directly with just one or two lenders.
Licensed mortgage brokerages and their agents and brokers can act on behalf of the lender, borrower or both. A borrower shopping for the best mortgage should first confirm with their prospective broker or agent that their role will be to act on their behalf. A licensed broker or agent is required by law to provide written disclosure to you about their relationship so that you can decide.
Depending on the type of license, the licensed professional you deal with may be a mortgage broker, or mortgage agent. Here, “mortgage broker” is used broadly to refer to either of these individuals.
- Look at your finances to determine the right type of mortgage product for you.
- Assess and compare proposed mortgages and determine if you meet the lender’s criteria and if the mortgage is suitable for you.
- Gather whatever information and documents are needed, and make sure all the paperwork is complete and submitted for the lender to approve.
- Negotiate with the lender regarding rate and term, liaise during the closing process, provide administration.
- They can also explain the application and approval process and answer any questions you may have, and review the rate, terms and conditions of the mortgage.
Working with a Mortgage Broker/Agent
From your initial meeting with a mortgage broker to the closing of the transaction, mortgage brokers are subject to a series of regulatory requirements as well as industry accepted practice standards.
Establishing the Relationship
Mortgage brokers are expected to ensure that you, the borrower, understand the relationship you are entering into with the mortgage broker and the services to be provided to you. Mortgage brokers should provide you with information about their role as well as other key aspects of the transaction. The Financial Services Commission of Ontario (FSCO) recommends that you get this information up front so you have a good understanding of the mortgage broker’s/agent’s role, the fees that he or she will charge, the services that will be provided and the information that the mortgage broker/agent will need from you.
When entering into a relationship with a licensed mortgage agent or broker, this is the kind of information you should be asking of them:
- The nature of the broker-client relationship
- Who the broker represents in the transaction
- What information you will need to provide
- How that information will be used
- How the broker will be compensated
- The services the broker will provide
- What is expected from you
- Any applicable broker charges and fees
It is important to note that if your mortgage is for $400,000 or less, mortgage brokerages in Ontario cannot accept or require you to make an advance payment for any expenses or services that will be offered by the mortgage brokerage or one of its employees, until you sign your mortgage agreement or enter into a new mortgage renewal agreement.
Your mortgage broker may ask you to sign a written service agreement, which is the same as a borrower disclosure. Written service agreements are not mandatory in Ontario but if your broker provides one it will make clear the roles and obligations of the mortgage broker and client.
Qualifying You for a Mortgage
Mortgage brokers need to obtain information from you in order to advise you of your mortgage option(s) and obtain approvals from lenders.
Providing Mortgage Options
Mortgage brokers are expected to provide you with option(s) that are appropriate and suitable to your circumstances based on an assessment of the lender, the mortgage, its structure, its features and its risks in light of the information you have provided on your needs and circumstances.
The mortgage broker will also explain his or her rationale for the option(s) that have been identified, provide you with information that will assist you in determining whether you can afford the mortgage and give you material information on the nature, costs and the particular risks of the mortgage option(s) identified for you. This information will help you decide if the mortgage is right for you.
You may be asked to sign a written acknowledgement of the risks associated with the mortgage.
For further information on the risks related to obtaining a mortgage, please read Understand the Risks of Getting a Mortgage.
Submitting the Application
Mortgage brokers will assess and submit your information to the lender you select from their options for approval. For further information on the application process, please read The Mortgage Application.
The information your mortgage broker provides to the lender must reflect the decision you have made. It must be truthful and consistent with the information you have provided and must not leave out any required information.
Your mortgage broker must submit all the information to the lender in a timely manner. Providing the lender with this information at the proper time ensures they can make the appropriate decision regarding the mortgage.
Mortgage brokers must provide you with certain information to help you make an informed decision about your mortgage. Your mortgage broker will be required to provide you with disclosures that include information on the role of the mortgage broker, the risks of the mortgage, and any potential conflicts of interests.
- An estimate of the total cost of borrowing for the term of the mortgage must be provided to you. The total cost of the mortgage depends on the terms and conditions for paying it back, such as the interest rate, fees and the amount of time it takes to pay off the entire mortgage (i.e., the “amortization period”). The total cost can be more than the amount you are borrowing.
- In Ontario, mortgage brokerages, brokers and agents are required to disclose to you the material risks of your mortgage in writing and in a manner that is logical and likely to bring the matter to your attention.
- All disclosure provided to you must be timely. Providing you with the right information at the right time will help you make an informed decision. In Ontario, there is a minimum two day cooling off period, unless waived. Take the time to review the details of the mortgage.
- The information your mortgage broker provides to help you make a decision must not contain misrepresentations, untrue or misleading statements. The information provided should be accurate and clear. If you do not understand any part of your mortgage transaction, you should ask your mortgage broker for clarification.
For further information on what licensed mortgage professionals are required to disclose, or what they cannot require you to do, please read Checklist – Working With a Mortgage Broker/Agent.
Conflict of Interest
Mortgage brokerages, brokers and agents must ensure that actual or potential conflicts of interest in connection with the mortgage are disclosed in writing.
A conflict of interest occurs when the mortgage broker has an actual or perceived personal interest in the transaction. That personal interest could influence the broker to provide advice to you that is in their interests, not yours.
Many things can lead to a conflict of interest, including receiving fees or incentives from other parties in the transaction, being related to another party in the transaction, and acting as a lender or realtor in the transaction.
Mortgage brokers must disclose conflicts of interest and should not place their own interests above the interests of their clients. If the mortgage broker is only representing you in the transaction, he or she has to place your interests first. If you feel that any advice, options or recommendations provided by your broker are not based on your interests, for example that the broker has received an incentive, call the Financial Services Commission of Ontario (FSCO) at (416) 250-7250 or toll free at 1-800-668-0128 and ask for the Contact Centre.
How to find a licensed broker or agent
The Financial Services Commission of Ontario (FSCO) licenses mortgage brokers, agents, brokerages and administrators in Ontario. Licensed mortgage professionals have met specific education, experience and suitability requirements.
FSCO maintains a list of all licensed mortgage professionals who have been approved for Licensing under the Mortgage Brokerages, Lenders and Administrators Act (MBLAA). Further verification can be obtained by faxing 416-226-7838, Attention: Licensing & Market Conduct Division. Or, you may write to: Licensing & Market Conduct Division, Financial Services Commission of Ontario, 5160 Yonge Street, Box 85, Toronto, ON, M2N 6L9.
Before agreeing to work with a mortgage broker, you should ask these questions:
- Are you a licensed mortgage broker? If yes, capture the license number.
- Do you represent the borrower, the lender or both?
- Do I need to sign a contract?
- What services do you provide and how will you help me?
- Do you charge a fee? How will you be compensated?
- How many lenders do you work with? Was most of your business done through one lender last year?
If your mortgage broker has a service agreement (not mandatory in Ontario) be sure to read it and discuss the terms and conditions with him or her. It will help you understand the services the mortgage broker will provide and well as any fees, payments or possible reimbursements.