When buying a home, working with a mortgage broker can be useful for finding the best mortgage loan.
However, not all brokers are trustworthy; some may use deceptive tactics to exploit you.
It’s crucial to be aware of these potential scams and take steps to protect yourself.
This article will outline five tips to help you avoid getting scammed by a mortgage broker.
By following these guidelines, you can ensure that you find a reliable broker who will help you secure a mortgage loan that fits your financial needs.
What is a Mortgage Broker in Canada?
If you’re looking for a mortgage in Canada, you may wonder about mortgage brokers.
Simply put, a mortgage broker is a licensed and regulated professional who acts as an intermediary between you, the borrower, and the mortgage lenders.
Their job is to collect information from both parties, find the best loans for you, and guide you through the process of getting the mortgage.
Working with a mortgage broker has many advantages, such as saving you time and helping you navigate the complex world of mortgages.
However, it’s essential to be aware of any shady business dealings in which less ethical brokers may engage.
While most mortgage brokers are honest and strive to secure the best mortgage deal for their clients, the dishonest may instead try to take advantage of you to their benefit.
It’s essential to be aware of the warning signs and do your research to avoid getting ripped off.
5 Signals to Help Getting Ripped Off By Your Mortgage Broker
1. Validate the Conflict of Interest Position
You hire a mortgage broker to represent you in the mortgage transaction and guide you in selecting the most suitable mortgage for your unique situation and needs.
However, how mortgage brokers are compensated can sometimes affect their ability to work in your best interest.
Most brokers are paid a commission, calculated as a percentage of the loan amount.
This payment method might tempt them to advise for a higher loan amount since the higher the loan amount, the more money they’ll earn from the transaction.
Also, they might lean towards specific lenders who have promised to offer them higher compensation.
In addition to financial compensation, brokers can also receive non-financial rewards such as vacation trips, VIP passes to events or conferences, and more.
Brokers may not be entirely transparent about their pay, making it difficult to determine how the mortgage transaction will benefit them financially and non-financially.
Taking necessary precautions is essential to avoid getting ripped off by your mortgage broker.
In the next section, we’ll cover some points to help minimize this conflict of interest and ensure that your broker works in your best interest.
2 Hidden fees
If you believe an interest rate appears exceptionally low for your specific circumstances, hidden fees may be attached to the loan’s tail end.
In some cases, these low-interest rates can be deceptive and may result in additional charges you may not know initially.
These fees can increase the total cost of the loan and reduce the funds available for your down payment or closing costs.
Dishonest brokers may not disclose these fees or how they determine the interest rate, so it is crucial to understand them before deciding.
For example, certain lenders may allow you to pay upfront or increase the lender fee for a lower mortgage rate.
Your broker must disclose these pricing options since they affect the total cost of the loan and your decision-making process.
To safeguard yourself from hidden fees, ask your broker to provide a detailed breakdown of all fees and lock in your interest rate.
3: Upfront payment
A mortgage broker asking for an upfront payment could be a warning sign of unethical practice.
Brokers must fully document the cost of their services and provide a disclosure outlining the complete breakdown of the loan costs after approval.
Any request for payment before these steps have been completed should raise concerns about the broker’s transparency and legitimacy.
It is important to note that if a broker needs to collect money upfront, it must be deposited into a Trust Account rather than their personal account.
This requirement ensures that your money is protected and used solely for your loan.
4. Be Alert for Bait and Switch Tactics
Bait and switch scams involve enticing customers with one deal and switching to a less favourable one once they are invested in the process.
In the case of mortgage loans, an unscrupulous broker may promise a low-interest rate only to present a more expensive option later.
They may use excuses such as a lack of qualification or the unavailability of the originally promised mortgage.
If you are promised a specific rate and get provided a higher rate in the process, do not blindly accept this change.
Stay vigilant and question any sudden changes to the terms of the loan.
5. Be Wary of Loan Packing
Mortgage brokers can rip you off by engaging in loan packing, a deceitful tactic involving additional fees and high closing costs for a loan later on.
Brokers often use this tactic to increase their commission by continuously attempting to sell you unnecessary programs and services.
Loan packing can be devastating as it increases the overall cost of the loan, making it more expensive to repay.
Brokers who pack loans may add fees for services you don’t need or are already included in the loan, such as mortgage insurance, real estate services or credit monitoring services.
They may also charge you for add-ons not part of the original loan agreement, such as home warranties or additional insurance policies.
To avoid falling victim to this tactic, it’s crucial to be aware of the signs of loan packing and thoroughly review all charges in the loan before signing any agreements.
Always ask for a breakdown of fees and charges, including any add-ons or services the broker is trying to sell you, and compare them with the costs of other lenders.
If you suspect that your broker is engaging in loan packing, don’t be afraid to speak up and ask questions.
Ask for clarification on any excessive or unnecessary charges and demand a clear explanation of why they are included in the loan.
A reputable broker will be transparent about all costs associated with the loan and won’t hesitate to answer your questions.
Protect Yourself from Deception by a Mortgage Broker
Although mortgage brokers are expected to act in the best interest of their clients, some individuals may seek to take advantage of unsuspecting borrowers.
To find a trustworthy and reliable broker, you can research their online reputation and read reviews from previous clients.
You can also ask friends or family members who have had positive experiences working with a broker for recommendations.