14 November 2012
And although mortgage brokers have made a stable connection between clients and lenders long ago, they became more or less popular only in the late 80s. At that time many trust companies and TD Bank started dealing with brokers for increasing their profits and promoting their products.
As a result:
• Financial institutions benefited from wider distribution without necessity to keep many branches.
• Borrowers got higher discounts on bank posted rates. In addition to it, consumers received significantly greater transparency.
As the experience shows, a stable broker market keeps the competition between lenders at the necessary level and works in the best interest of consumers. The Bank of Canada also supports the idea in one of its reports:
“…mortgage borrowers are more likely to work with a broker when there are more lenders at the market, as in this case the benefits from using a broker are higher, because he or she has an access to numerous options.”
Another important issue mentioned by the central bank is that banks usually do not treat all clients the same way. For instance, they tend to offer lower rates only to new clients, trying to increase profits when the competition is weak.
And as brokers promote greater lender transparency, banks start offering good products to all consumers, and not only to the new ones. Now a broker’s market share is almost 30%, and imagine the sum of savings if it were as high as 50%.