4 Reasons Why I Don’t Use A Mortgage Broker

Earlier this week Krystal Yee wrote an article on Moneyville about her experience using a mortgage broker to secure financing on her first home, and suggested anyone considering buying a home should try a mortgage broker to help them through the home buying process.

The article quoted a recent CMHC survey stating that only 48 percent of first time home buyers chose to use a mortgage broker.

Using A Mortgage Broker

I can see the benefits of using a mortgage broker; buying a home is stressful enough without having to worry about visiting multiple lenders and trying to understand the different rates, terms and conditions of your mortgage.

If the mortgage broker is doing their job, they will find you the best rate and terms according to your needs.

That all sounds pretty good, so why aren’t more people using a mortgage broker when they buy a house?  Let me share 4 reasons why I don’t use a mortgage broker, and probably never will:

1. They Push the 5-Year Fixed Rate

Most of the mortgage broker ads I’ve seen claim you will save money using their services because they can locate the lowest 5-year fixed rates in the market.  The problem is, home owners would have been better off opting for the variable rate instead of the 5-year fixed rate nearly 90 percent of the time.

Using a mortgage broker to obtain the lowest 5-year fixed rate likely ensures that you will be worse off financially in 5 years while your broker and your lender make money.

2. I Had a Good Relationship With My Bank

Even though I recently became fed up with my full service bank and switched to no fee banking, I actually had a pretty good relationship with my bank.  Walking into my branch and asking about mortgage rates was not an intimidating process for me as a first-time home buyer.

Now that I’ve moved into my 3rd home and gone through several mortgage renewals and a mortgage refinancing I’ve received plenty of perks for staying with one lender, including waiving home appraisal fees and interest penalties.  And my variable interest rate mortgage has always been within 0.10% of the best available rate in the market.

3. Bad Reputation

My first impression of a mortgage broker was not at all positive.  They send out flyer’s in the mail encouraging people to refinance and use the money to take a vacation, buy a new car, or increase their amortization and consolidate debt.  They post rates on their website claiming their mortgage rates are more than 2.00% lower than the big 5 bank rates, even though they are clearly displaying the banks’ posted rates and not the best available rate online.

Mortgage brokers are also quick to spread fear over pending interest rate hikes while strongly encouraging home owners that they need to “lock-in” now.  Much like mutual fund sales people, mortgage brokers get paid (or get paid more) if you buy a particular product.  Yes, their services are free to you, but you need to understand how they are being compensated for your business.

4. Do It Yourself

Mortgage brokers promote the fact that they are a one-stop shop and work with hundreds of lenders to save you time and money.  But mortgage rates are accessible by anyone online, and by using a tool like Rate Supermarket you can easily compare mortgage rates in your area with just a few clicks.

Once you narrow down your list of potential lenders you can simply request a call back and most of your research is done.  That doesn’t sound like a big hassle to me.

There’s nothing wrong with using a reputable and trusted mortgage broker to help walk you through the home buying process.  Just remember that not everyone is looking out for your best interests, especially when there are incentives in place for both the mortgage broker and lender to gain your business.

Make sure you do your own research and understand all of the fees, terms and conditions that your mortgage broker is negotiating on your behalf.


89 Responses to 4 Reasons Why I Don’t Use A Mortgage Broker

  1. Eric Putnam says:

    For clarification regarding point 1 above as a former exec with 2 lenders that dealt exclusively with brokers lenders typically pay brokers more the longer the term BUT brokers are paid same commission on a 5 yr FIXED as a they are paid on a 5 yr VARIABLE rate.

    Canadians historically have chosen (for whatever reason) a 5 yr fixed rate whteher dealing with a bank directly or via broker approximately 60% of the time according to stats from Cdn Association of Accredited Mortgage Professionals (www.caamp.org) as well as Cdn Bankers Association.

  2. Fred says:

    Another strike against mortgage brokers: they are often tied in with a given real-estate agent. It was terrible when, by mistake, our real-estate agent called in our mortgage broker (she referred us to) to check on our borrowing capacity, while we were in the room meeting with our mortgage broker.

    Talk about back-door dealings.

    • Echo says:

      @Fred
      I’ve seen a lot of that here in Lethbridge as well. it wouldn’t exactly give me confidence that my broker is looking out for my best interests when they are on a bus bench ad (or flyer) with a particular real estate agent.

      • Scott Dawson says:

        I can only speak for myself and not every other mortgage broker but I don’t work with any Realtor that expects any sort of kickback for referring me. The same goes for when I refer clients to Realtors. I prefer to surround myself with other professionals that have the clients best interest in mind as apposed to if their pocket will be lined or not.

        Clients come first for me and the referral partners I work with refer me because they know I will look after our mutual clients.

        In British Colombia any monetary compensation that is being paid by the mortgage broker also has to be disclosed fully to the client.

    • Jake says:

      what exactly is wrong with a Realtor working with a mortgage broker? you should’ve asked your agent to leave then or told them you can take care of your own finances, not rant on a message board about it being “another” strike against us evil bad and incompetent brokers.

  3. Scott Dawson says:

    Eric is correct. Brokers are paid the same for either a fixed or variable. We’re paid based on the length of term and mortgage amount funded. We are also not paid commission on CMHC mortgage insurance fees.

    Part of the reason many people are going with the fixed rates as well has to do with the way you have to qualify on the posted rates if they want to go the Variable route.

    Some people don’t have the choice to go Variable and are forced to go to a five year fixed. The banks love the new rules introduced by the government because they make the most profit on a 5 year fixed.

    You mentioned you have a good relationship with your bank. I’m guessing it’s not your bank but instead you’ve built a good relationships with the employees that work there and they have earned your trust over the years. This is great. That’s how people should go about finding the mortgage broker (or any business) they ultimately choose to deal with. Build a relationship and do business with the people you like and trust.

    Sadly, so many mortgage brokers are just after quick transaction and give us all a bad reputation.

    • Echo says:

      @Scott
      Thanks for commenting, Scott. You bring up a good point about qualifying on the posted rate if you want to go variable.

      You’re right, it is about relationships. If I had one with a good mortgage broker, perhaps I’d feel differently. But I’ve seen too many, as you’ve said, who are just out for the quick buck and have given the industry a bad reputation.

      • Hi, Echo. I will “echo” (no pun intended) Scott’s comments. When I am speaking with my clients the conversation revolves around ALL terms available. MOST people are focussed on 5 yr fixed however I do talk about all options.

        And I bristle at the comment “bad reputation”. There are literally thousands of GREAT mortgage brokers that take what we do VERY seriously. Not to mention the industry has taken great strides in improving consumer knowledge, broker services and industry awareness.
        Please don’t paint us all with the same brush.
        You could easily write an article saying don’t use banks. I have had clients come to me saying the bank individual didn’t know what they were talking about and totally messed up their file.
        As recently as yesterday I caught wind of a bank mortgage rep telling a client “We don’t do purchase + improvements mortgages because they are too much work.”
        My word!
        Anyway, you catch my drift.
        Other than THIS article…I love the blog. Keep it up! :)

  4. I am the same way Echo, I just found that I personally wanted to understand everything about the huge financial agreement I was entering into. If I was going to go through all the trouble of finding out what a pre-payment option etc, was, then I might as well do it myself. Really, there isn’t THAT much information to take into consideration for most buyers. I’m a pretty simple guy so I wasn’t looking at anything too intense anyway.

    • Echo says:

      @My University Money
      I had pretty simple needs, give me the best rate (within a tenth of a point) and I’m happy. I’m not moving again for a long time, so I wasn’t worried about the terms too much.

  5. Yeah. Me neither. You can easily find a good mortgage deal on your own.

  6. krantcents says:

    When I refinanced my mortgage, I went direct to the bank to negotiate the rate and term. In addition, I was able to negotiate some of the expenses in the closing costs.

  7. Jim Yih says:

    Good post Robb! I think it boils down the the person. There are good mortgage brokers and bad ones just like there are good advisors and bad ones. Good Doctors and bad doctors. Good home builders and bad ones.

    I think mortgage brokers have a place especially if they really shop for the best products and the lowest rates and are trying to act in the best interest of their clients instead of themselves. I’ve seen some mortgage brokers recommend taking out bigger mortgages instead of using cash or capital which is not always prudent advice.

    It’s not surprising to me that you did not use a mortgage broker. You are a prime candidate for the do-it-yourself approach not just for mortgages but also for investing and personal finance. You have the drive to research, a high level of knowledge and the desire to do it. Not everyone is like you and some people need more help with their mortgage decisions.

    cheers!
    Jim

    • Echo says:

      Thanks Jim! As with using an advisor or a real estate agent, no one cares more about your finances than you do, so it’s best to at least arm yourself with the knowledge of what you are getting yourself into. Sure, a good mortgage broker could be very beneficial in helping you make your decision, the challenge is finding that broker ahead of time.

  8. My ex and I used a mortgage broker when we bought our house in 2004. In our case, we couldn’t qualify for a mortgage through a bank (should have been our first clue!), so we tried a broker as a last resort. They conveniently ignored all the debt in my name, putting only my ex’s name on the morgage so we would be approved. We were also strongly encouraged to use a zero-down mortgage, leaving us upside down when we got divorced and needed to sell. We ended up with a house we couldn’t afford, too many bills, and no lessons learned about responsible spending/saving. :(

    • Jake says:

      Doesn’t sound like you have a beef with the broker but perhaps your realtor who slammed you into the place? and yourself for not having the foresight to know what you can and can’t afford? tough lesson, I know, but hopefully you have learned from it.

      • The broker encouraged a Zero-down option…and only used 1 spouse….that is not an issue with the Realtor but the broker…seems like all the broker cared about is getting the commission…which is often the case….”Get the deal, no matter how”

        • billi says:

          Well they knew they were not qualified in the first place. Broker help them look at their finances different way so they can still get a home they wanted. Its their final decision to go ahead and dive into it, knowing all the risks.
          I wouldn’t expect broker to followup with them, on their spending habits, if they adjusted to new circumstances.

    • Echo says:

      @Andrea
      Sorry to hear about your poor experience with a mortgage broker. Hopefully things have turned around for you.

  9. Jean says:

    Theres always a chance that interest rates will rise above the fixed rate though right? Thats what can make the variable rate such a dangerous thing if you can’t support a higher interest rate payment. If anything in my opinion those that go with the fixed rate likely do it because they are not willing to take a gamble on the future interest rates, i mean lets face it there is alot of uncertainty. My question is, what kind of gaps are we talking about between the fixed interest rate that these mortgage brokers are suggesting vs the variable rate.

    -Jean

    • Echo says:

      @Jean
      Yes, of course there is a chance that interest rates will rise above the current fixed rate, that’s why people pay a premium for the peace of mind in case that happens. I take more of a methodical approach and note that 9/10 times you will save money with the variable rate, and since interest rate hikes will probably be gradual in the future, it might still work out in my favour if the variable rate is lower for 2 or 2.5 years of my term.

      The gap between fixed and variable right now is about 1.25% or 1.50%

      • Jake says:

        No it isn’t. The gap is closer to less-than-1%.

        5yr fixed 3.39%
        5yr variable 2.5%

        • Jake says:

          I also think that as with all investments, “the past is no indicator of future results”. Yes, people in the past have saved in variable (according to many studies). Not to say it will ALWAYS happen, though.

          I personally ask people about their investments, strategies etc. If someone’s loaded in GICs, then a fixed term sounds more proper. If they’re in RIM, GOOG, AAPL in their RRSPs, then perhaps we should talk variable.

      • Jean says:

        Yeah if the gap is substantial like that, then yeah the variable rate will be something very much to look at. One thing my professor talked about is turning that variable rate loan into essentially a fixed rate loan. Essentially shielding yourself from the interest rate risk. By hedging your position, so that no matter which ways the interest rates go, you’ve essentially locked yourself into a ‘fixed’ interest rate at the time of purchase. Offcourse I’ve never looked into it personally to see what the market is offering and just how much of a premium you would have to pay to hedge yourself, and how much you would come out ahead of the deal. Offcourse the common person would not know about that. Anyways, knowing the way the market works, and how it takes out the imperfections and opportunities for arbitrage, its probably a negligible difference and that difference between the fixed and variable is what you would have to pay in order to enter into a futures/forward contract to hedge the interest rate risk.

        Hopefully what I said made sense, and helps someone out there with an idea.

        -Jean

        • Echo says:

          @Jean – I have done that by fixing the monthly payments at $500 above the current variable rate minimum payment on my mortgage. So, it’s like I’m making payments at 4.5% or 5.0% rather than at 2.20%

  10. Jake says:

    Although I know this post is based on your experience, I wanted to counter it with mine (as a mortgage guy)

    We don’t “push” 5-year rates. When a client asks for a mortgage, a 5-year time window is suitable for them, and just long AND short enough with enough flexibility down the road. That being said we always should (I do at least) ask what the client’s preference is, the ins/outs of shorter/longer terms. What’s so bad about a 5-year term anyways? And which broker pushes 5yr fixed these days? None that I know.

    Consolidating debt is a fantastic way to use your equity (pay off higher interest cards). Vacations/cars is not. Don’t blame the guy in your area for selling his business, though. You don’t want it, don’t take it.

    Your relationship with the bank is noted – but, on the flip side – as a broker I intend on being one for many years to come (already at 8). So if the guy at the bank leaves, you’re starting all over again. Also, as a consumer of RBC and mortgaged by ING, I realized there was zero benefit going with RBC for everything. They did not give me the better rate or terms, so why give them the business? Now, say your “contact” at the bank leaves, then what? Like I said you’d be starting from scratch because you need to establish a new banking relationship all over again.

    And finally, we don’t get paid at all when people lock their mortgages in. On the contrary, we lose the client for a longer time. So if a broker is suggesting you lock in from variable to fixed, perhaps you should listen to their advice because they see the bond market daily, hear what’s happening, and it may make sense to go fixed instead of variable.

    You’re absolutely right – people who are educated are the best types of clients to have – and it’s easier to be educated, but I find fault with your post (and perhaps am too defensive about it because I couldn’t think of one reason why NOT to use a broker)

    (truth be told have not read other comments yet but wanted to give my take before I did)

    • Echo says:

      @Jake
      I appreciate your input as an experienced mortgage broker, but you have to admit that your view might be a bit biased, no?

      I’m sharing my experience as an un-biased home owner and I’ve seen plenty of shady dealings from mortgage brokers, enough to convince me that it was not in my best interests to use one.

      I’m sure there are great brokers out there, but whenever there is a financial incentive tied to the equation, consumers should be aware that their best interests might not always be considered.

      • Jake says:

        absolutely biased, perhaps I wanted to counter your posts with the thought that the good guys out there love their jobs, love working with and helping people.

        • Boomer says:

          @Jake
          I thought I’d jump in here. I worked for a bank for over 25 years and was with them when we purchased our current house. Hoping to get a favourable employee rate I first approached them – no deal. I subsequently went to a mortgage broker who got us a fantastic rate. I have to mention that one of the offers came from a branch of my own bank and I refused to deal with them by then.
          I had such a good relationship with the broker that I often referred clients to him when they didn’t quite fit our lending parameters and he was very professional and able to help them more often than not. Even though I’m no longer in the biz I still get a Xmas card and calendar from him.

  11. Bob M says:

    I started using a broker about 15 years ago. My mortgage at the local bank that I did all my banking at was coming up for the 5 year renewal. Yes I had 5 year fixed because I fortunately had a 5 year fixed at 12% when the rates shot up to 18% in the late 70′s.

    The broker offered 1% less than my bank, so I asked them for the same rate, they refused. I went to the broker, got 1% less and the kicker is that it was at the same bank. I then went back and while getting the same mortgage at the same bank for less and they had to pay the broker a fee, I questioned their method of doing things.

    Bob

  12. Echo says:

    @Bob and Boomer

    It sounds like banks were not very competitive with their rates 10-20 years ago, and I can’t believe they would offer a broker a better rate than their own customer (or their own employee, for that matter). Nowadays I don’t think they could get away with that, their best rates are posted online for all to see.

    In the hotel industry you used to be able to find lower rates by going through various channels to get the best deal. Now they have rate parity across all channels, meaning they can’t offer a lower rate on their own website (or over the phone) than they post on 3rd party channels like Expedia or Travelocity. It works much better when the industry is transparent to all its customers.

    • John G says:

      As of September 15, 2011

      CIBC is currently offering 4.04% 5 year fixed rates to their clients in the branch and through renewals.

      Through the Broker Channel they are offering 5 year fixed at 3.59% and paying the broker for their services.

      They bank on the fact that people walk into their branch every day and are comfortable with the bank. They advertise it based on their posted rate showing the 4.04% as a special rate.

      With that difference in rate on a $250,000 mortgage over 25 year amortization the consumer will pay approximately $13,000 more in interest with the higher rate as opposed to the rate offered through the broker channel.

      The Banks still follow these shady practices today.

      PS. I am a Mortgage Agent in Ontario and a banking client at CIBC.

      • John G says:

        To Clarify.

        The $13,000 is based on the 5 year term and does not take into account residual payment increases based on a higher remaining balance at the end of the term.

  13. I Had a Good Relationship With My Bank – You mean with some employees – is that correct?

    Corporations have no face, so, a borrower can not have relationship with it. Although, the retention departments are meant to give a consumer that warm feeling.

    Not all the on-line shopping site can satisfy borrowers need, neither they post the best rate all the time.

    Mortgage is not all about rate. There are more to it. A broker helps to understand various aspect of a mortgage

    • Echo says:

      @Sudip
      Yes, of course the relationship was with some employees…but I had excellent service from multiple employees at that bank over the last decade.

      True, a mortgage isn’t all about the rate. But for me, it’s 95% about the rate and 5% about convenience.

      • Jake says:

        95% about rate? Wow.

        What about:
        prepayment penalties?
        approval time?
        knowing the bank well enough to know they will fund the deal on time?
        dealing with conditions?
        payment frequency terms?
        pre-payment allowances?
        porting timeframe allowances?
        what kind of mortgage is it?
        how is it compounded?
        will the lender be around when you’re looking to port?

        none of that matters, but rate? 95% of it is just rate?

        A client recently left me for 0.04%, or $6.22 per month in savings. $6.22! Incredible. 4 days before closing. I learn from each time that sort of thing happens but when comparing apples to apples, look beyond rate and you’ll see a world of difference.

        • Echo says:

          @Jake
          I would be much more concerned with those criteria from a lender I’ve never heard of than from the bank I’ve used for 20 years.

          When I say it’s about rate for me, I mean that if I’m in the market for a mortgage and I know that I want a prime minus X variable rate, then I’m going to narrow down my selection based on the lenders who can offer something in that ballpark. I certainly wouldn’t argue over 0.04%

          At the time I was ready to renew, I saw that prime-0.9% was available. I asked my bank if they could do that and they said no, but they could offer prime-0.8%.

          I just built a house, I’m not moving for 10+ years (hopefully 20). I knew I could double my monthly payments with them if I chose to, which worked for me.

          I have no doubt that good mortgage brokers can add value for some people, but I’m just saying they are not neccesary in every situation.

          • Randy says:

            Hi, another mortgage professional here, so there may be some bias, but long before I was a broker I was a consumer who used brokers.

            Your views are respected, because I know there are always two sides to the coin.

            That being said, you are broadcasting your opinions across the internet and are financially sophisticated. You are demonstrating that you have the means to make educated and financially secure decisions. Your goal with this blog seems to be to educating people on making smart decisions with money. Perhaps you should be suggesting how to find a good mortgage broker or how to negotiate a better rate with your bank, rather than painting all mortgage brokers with the same negative brush.

            You obviously have enough experience with mortgages and are comfortable with conditions because you knew how important it was that you could double your payments when you wanted to. Not everyone has that as a concern, or the ability to qualify for a variable rate mortgage, but are looking for other ways that their mortgage can help them achieve their long and short term goals.

            Especially in these current conditions, is it not more important than ever to find a team of advisers that you can trust to help you reach your goals? I for one, love helping people clarify their goals with respect to real estate and give them the means to help attain them. Sometimes that means a five year fixed, but that is NEVER the first choice.
            The banks satisfy their shareholders with immense profits by selling five year fixed mortgages 70% of the time.

          • Echo says:

            @Randy – thanks for your comment. When I originally wrote this piece, it was in response to an article that was giving reasons to use a mortgage broker. It basically suggested that it was stupid for anyone NOT use a mortgage broker.

            At the time I was receiving flyers from questionable brokers looking for people to refinance, and some of my broker “friends” on Facebook and Twitter were urging people to make an appointment to “lock-in now” as rates were headed up.

            I was annoyed and felt the article deserved a response. I have never used a broker and have been a home owner (in part) since I was 19. I’m satisfied that I made the best deal on my own, although my situation is not very complex (not self-employed, no danger of being relocated for work).

            I know that people can do it on their own without a broker, though I will admit that there are plenty of excellent brokers out there who are providing value for their clients. I certainly didn’t intend to paint all brokers with the same negative brush.

            I like your idea of writing a post on how to negotiate the best deal with your bank.

            And if you would like to guest post here and give the readers a different perspective on how to find a good broker, or what qualities to look for in a good broker, I’m open to that as well.

            Thanks!

        • Hey it’s $6.22 in their pockets…why would I not want an extra $6.22 in my pocket?

          For the most part lending institutions have fairly similar terms…compounding, pre-payment options and payment frequencies are very similar for the most part….often the savings in rates will beat a small convenience in terms

      • Sudip Adhikari says:

        Agreed.
        Let us put it this way – it is 95% about carrying cost of a debt (mortgage).

        Interest rate is a major part of it.

        If you consider probability then there is a 70% chance that a Canadian has to pay pre-payment penalty.

        There are a number of other factors which give a borrower higher debt servicing cost than interest alone.

        It could be very well the case that you are in the rest 30%, but there.are other catches.

  14. Great blog, I am a Mortgage Broker as well, I respect your opinion but differ as follows:

    1. They Push the 5-Year Fixed Rate

    The other way around is my experience. One of the ways my customers find value is by the broker understanding their needs and what they want to accomplish. I love the fact that as brokers we have many tools to fit what a client may need. No particular bank has the same set of tools.

    2. I Had a Good Relationship With My Bank

    Interesting point of view, I have accounts at different banks and I have been unable to keep a relationship with any person in particular. They do have my account but with my mortagage, visa, checking accoutn, even RRSPs the advisor has never been the same over the years. My experience is different as banks do not want a customer to have a relationship with the employee because they know if the employee goes to another bank (something very realistic) the account will follow.

    3. Bad Reputation

    My first time at this blog is not positive as I find information that is an opinion and can be taken the wrong way. At the same time I went and read other posts and I realize that it is a great blog. Instead of making a judgment with a first impression, I’d love if you get closer to the mortgage broker industry and learn more about us.

    4. Do It Yourself

    On this point, you mention a website where you go and within a few clicks your research is done. I would suggest to your readers the other way. Spend good time researching options and understanding how they can manage their mortgage better, when they focus their attention not only on a few clicks, they will find excellent ways to save literally thousands of dollars on a mortgage. In my experience you have 2 options, go only with the rate (quick fix) or have a well thought strategy according to your overall financial plan. A mortgage professional and broker can help you with this.

    Great blog! Keep the good work.

    • Echo says:

      @Camilo
      Thanks for your comments. As I said in the title, these are reasons why I didn’t use a mortgage broker, not necessarily reasons why people shouldn’t.

      It’s not that I think your industry is evil, in fact I know that having an expert on your side can really help people (especially first time home buyers) through the process.

      But some of us choose to understand and manage our own financial decisions, home ownership being one of the biggest. I know what I wanted and went out and got it myself. I’m not sure how a broker would have added value, in my case.

      Thanks for having an open mind and checking out our other articles. If I knew mortgage brokers half as passionate as some of the ones commenting here, perhaps I’d feel differently.

  15. Sometime I wonder about the fact that I don’t have a good enough relationship with a bank for them to give me a special deal. Then I remember this would probably means they have made so much profit from me that they feel bad and want to give some back. I prefer financial intermediaries who don’t have to feel bad about how much they’re taking from me :)

    I had a small investment account with a major bank and closed it when we bought our house (fees were too high). I had to go in to do this and when I mentioned that I had arranged a mortgage through a broker the rep said “you should have come to us… I don’t even know how mortgage brokers work”. On the other hand with the broker I could have an informed conversation about how to approach the lending market and even the benefits of a larger downpayment vs investing more (not just “you should try our XYZ fund, it did really well last year!”).

    I’m sure there are plenty of mortgage brokers who are clueless so I even shopped around for a broker and found one in another city that didn’t need to advertise for new clients and had good relationships with lenders that had rate specials on.

  16. kata says:

    It’s interesting that you trash mortgage brokers without ever having used one and then have the gaul to collect money from two mortgage brokerage companies for advertising (on this page) and on the side-bar have Ratesupermarket.ca (another brokerage firm)advertise. You lost your credibility as soon as I looked at the blog when I saw, “why I don’t use mortgage brokers” and then directly beneith it you show two advertisements from mortgage brokerage companies….something about biting the hand that feeds you comes to mind….

    • Echo says:

      @kata
      To quote the end of my article, “There’s nothing wrong with using a reputable and trusted mortgage broker to help walk you through the home buying process.”

      How is that trashing mortgage brokers? I’m simply pointing out reasons why I chose not to work with one.

      Regarding the advertising, those ads are placed contextually by Google, meaning the ads match what the article is related to. If I wrote about reasons not to buy gold right now, there would likely be advertisements on how to buy gold in those spots.

      RateSupermarket.ca is an independent information source where consumers can get free, up to date information on mortgage rates and other personal finance offers. I recommend people use it to help make an informed decision on the product they’re buying.

  17. harry says:

    Hi you all out there. i have read all your replies and contributions to Echo’s reasons for not using a broker.

    Most of the time people think they know the details of a mortgage but they dont. brokers are trained to see what the untrained eye cannot comprehend. Trust me Ignorance is more expensive than the fees paid to brokers. i believe they are there to help those who can’t afford all the time looking for the best deals. Even if all rates are quoted in APR’s, who said its all (well most) about that.

    the ability to understand the details of mortgage contracts is very important. if do not know, then pay someone to help you simple.

  18. Laura says:

    Echo,

    You need to get educated and understand the wider view before commenting on the current mortgage system in place in Canada. There isn’t enough space here to do that but I would like to respond to your comments as briefly as possible.
    1. Brokers push the 5 yr rate: This is ridiculous, there is no financial incentive for us to do this. In 11 years as a Broker, I have offered both fixed and variable terms to clients equally. If we wanted to increase our commission from the lender we would be promoting the longer term rates. ie 7-10 yrs.
    2. Good relationship with bank and no fees: You haven’t seen the fees because you don’t understand how the fees are incorporated. For example, when your bank offered to waive your penalty ( I assume) for signing a new term with them early. Do you know how the penalty on the new term would be calculated if you didn’t complete that term? Did your ‘friendly banker’ explain that detail to you or how the investor on your mortgage will be compensated for you not completing the term?
    3: Brokers promote debt consolidation and spread fear over interest rate hikes: As mentioned in the comments already, we are not compensated in any way to get a client to lock in a variable rate mortgage to a fixed term.
    4: Rate supermarket: Great vehicle to get the conversation going with my clients. When a client asks me why there is variation in rates I now have the opportunity to educate on the finer points of mortgage terms and conditions. There truly is ‘no free lunch’. But you don’t need me to explain because apparently you are qualified to discern all of this. Now for the most important comment of all:

    It seems in all your wisdom you have completely forgotten to mention the most important point. If all consumers stopped using a broker and went directly to a branch or on-line service, Mortgage Brokers would then become obsolete. What a great day for the banks and lenders! No more competition to keep them honest or competitive on rates. It doesn’t take a financial genius to figure out that lenders would increase the spread on the mortgages they offer and consumers will have no alternative. As evidenced by ‘the old days’ of lending before Mortgage Brokers became an option. I would like to read your comments after you go into your ‘friendly branch’ under these circumstances.

    Thank you for allowing me to comment.
    Laura

    • Echo says:

      @Laura – thanks for your comments. I’m not sure why you feel I’m unqualified to post my opinion of mortgage brokers. I realize that I haven’t gone through the several weeks of training involved in becoming a mortgage broker, but I’ve been a home owner for 13 years and managed to negotiate several new mortgages and renewals on my own. I assure you that I understand the process completely.

      I expected mortgage brokers to jump in and defend their industry, especially the good ones. If I wrote a similar post on travel agents or real estate agents, I’m sure the majority of the comments would be from professionals in those industries explaining why their jobs are necessary.

      But don’t assume that I am ignorant and uneducated just because I believe people are capable of doing this on their own.

      The mortgage industry is extremely competitive, as witnessed by the recent 5-year discounts offered by BMO and others. And yes, I am fully aware of the restrictions that came with BMO’s 2.99% promotional offer (that has now expired).

      Mortgage brokers can play an important role in helping people through the mortgage process, especially first-time home buyers. A good broker definitely offers value for their clients.

      But it is possible to do it on your own. At least that’s my uneducated opinion.

      • Laura says:

        Echo,

        Yes, you could do it on your own and you may get your wish in the near future. Welcome to a non-competitive rate world and terms and conditions that will undoubtedly favour the investor. Brokers are intermediaries that keep the system honest and working in favour of the borrower as best as possible.

        By the way, ‘the weeks’ it took me to get my license did not make me the Broker I am today. I am still learning with each and every situation I encounter in an ever changing mortgage climate. My goal is to provide all of the information and let my clients decide which is the best for them. So I guess we have the same goal in that regard.

    • Roxanne says:

      I was very offended with Echo’s comments towards mortgage brokers as well Laura. I would like to add that someone working at a bank doing mortgages does not need to be licensed, We on the other hand (Mortgage agents and brokers) have to be. We are governed by FSCO and have strong compliance rules that we have to adhere too. Echo you say below it is just your opinion,,,well it is just my opinion from things that you posted that you really do not understand.

  19. Besi says:

    echo knows everything without requiring qualifications or experience. nice article.

  20. I think its sad when people with no qualifications decade to write article about things beyond their grasp.

    The people who work at the bank are paid sometimes 100% commission or paid a salary plus bonuses.

    This is like telling people not to shop at the Brick because you can order a Sofa from China online by yourself.

    The variable rate may be a good choice for you but its not for everyone.

    You may be fortunate enough to be able to walk into a bank and qualify for a discounted mortgage rate. However, not everyone can qualify for a mortgage at the bank and they need to use a Mortgage Broker to get a Mortgage.

    Brokers have access to way more options and can get the deal done.

    I have helped people from losing their house in less than a week, how many people sitting in a bank can tell you that?

    Zero

  21. derek says:

    don’t use a broker unless you want to pay more. I used a broker in Winnipeg and their fee is built into the mortgage. So instead of walking into any bank and getting a good rate, I ended up paying 1/4% more
    completely mislead.

    • Walk? Why walk and sit in a bank all afternoon when you can call a Broker and get everything done without leaving your house? Right now my rate on a 5 year is 3.14% there is no chance any bank here is going to offer someone less than that on a 5 year. Our commissions are paid by the bank. Not by the borrower. We save the bank money because they didn’t have to pay their bank employee a salary plus bonuses and provide office space. Brokers just hand them the client with all the work done. Banks enjoy working with brokers. The only time the fee is “Built in” is when you borrow private money and the fees are disclosed to the borrower. Private money is for people who do not qualify at the bank and you can only access the private money though a broker. Nobody wants to pay more, if you did some research the stats show that people who went to a broker pay on average less interest than people who went to the bank.

  22. Drew says:

    I find this article somewhat unfair towards us Brokers. “They push the 5 year rate”

    1) Depending on your income situation, to have any rate under a 5 year term, you must qualify on a certain posted rate (Usually 5%+). Not everyone can qualify on this high rate, therefore the best solution for the client is to take the 5 year term, as they do not have to qualify on the 5% posted rate, but rather the actual rate they are receiving (3.36% for example)

    2) Yes we get paid depending on what product we sell. The longer the term, the more we get paid. The shorter the less…upfront. Should you give a client a 1 year term, you will get paid lower than a 5 year, but assuming the client is happy with your work, they will return to you next year, applying for another 1 year, which in turn mean you get paid again for it. What I am getting at is 1 yr term x 2 = more money in 2 years than you made off selling a 5 year.

    3) We are paid based on performance. If we don’t close your deal, we don’t get paid. We are motivated. Some banks pay their employees salary, which means they will expect that pay at the end of the week should they close your deal or not. Now you tell me, do you want someone who is hungry for the business, or someone who looks at you like someone who will pass the time for them until the end of the day arrives.

    This article is completely bias. There are pros and cons for everything.

    • Victor says:

      I believe brokers work on their best interest and NOT the client interest. I recently called a broker to get a loan on the 60-70k. When he noticed that I qualify up to 200k then he started pushing me to get a loan over 100k. I walked away and now i’m doing my research and calling the lenders directly. I don’t want to deal with brokers.

      • John G says:

        Hi Victor,

        As a mortgage agent I really hope you don’t let one bad apple ruin your interpretation of what Mortgage Professionals do on a day to day basis. It also sounds like there is more to this story. Was there a reason this broker was trying to guide you towards a larger loan amount?

        That being said with any transaction, just because you qualify for something, it doesn’t mean you have to extend yourself to the full amount or any higher than you are comfortable accepting.

      • V says:

        Some time ago I went to a mortgage specialist at RBC. Just wanted to refinance to get a car but the specialist kept pushing to borrow more money for home renovations and more. Just saying, it’s not just the brokers that push.

  23. Sounds like there could be more to the story. What can you buy for 70K? You think the unlicensed staff at a bank will be more likely to look out for your best interest?

  24. not a broker says:

    “using a tool like Rate Supermarket you can easily compare mortgage rates”

    ratesupermarket results are all from a mortgage broker…

  25. Ray says:

    It’s a shame when you paint the canvas with one brush. As with any profession, there are good ones and poor ones. Greedy ones and those who care.

    Of course you must also realize that Mortgage Agents have to make a living and pay for their houses and feed their families too.

    I am a new agent and I am currently writing all the do’s and dont’s that I as a person will have to follow. These guidelines will be to keep me in check and ensure my clients are the number one priority. Since almost 80% of people do not know about mortgages nor do they have the inclination to learn, a great agent is a good option for them.

    Dealing with one of the banks does not guarantee you the best product, service or rate either. It ill depend a lot on the question you as a borrower asks and the knowledge you have about mortgages. Again 80% of the borrowers will just “trust” the bank employee and go on their recommendation which of course is completely to the banks benefit.

    Sorry, but I am not in total agreement with your article because it is biased in that you assume all agents are greedy and do not care about their clients and you also assume that every bank emplyee actually cares about the borrower.

    Enough said.

  26. Gerard says:

    Hmmm, the defensive comments from brokers are beginning to sound a lot like the typical online comments from realtors. Maybe because they deal with each other so much?
    (That said, I’ve been fairly happy with my broker. Yes, she pushed 5-year fixed and is *always* convinced rates are about to skyrocket, but she did a lot of work for me, helped me get a decent variable rate last time around with an extra 10 basis points off, and actually advised me to deal direct with my bank for a renewal this year, saying she couldn’t match their offer.)

  27. Realtors take a lot of criticism from people who think that a realtor does nothing but collect commission. So rightly they will defend their profession, as will mortgage brokers. On different occasions my clients have tried to buy property without a realtor. When they come to their senses and use a realtor, the offer is 5-10k less than they offered on their own. You are very lucky to have a great mortgage broker who keeps in touch with you and shares her commission to get you a lower rate. Not many people are so fortunate. If you are only fairly happy, your expectations are unreasonable. She is paid nothing for recommending you stay with the bank. She clearly has your best interest in mind.

  28. Joseph White says:

    With all of the choices available to consumers in today’s mortgage market, you may ask yourself, “Why should I use a mortgage broker?” That’s a great question and the reason is the same as the question: because there are so many choices available to consumers in today’s mortgage market.

    Many of the country’s most wealthy individuals rely on financial advisors to manage their portfolio, and that’s what using a mortgage broker is like; it’s like having your own personal advisor for your financing. Mortgage brokers are typically compensated by the lender that funds the consumer’s mortgage, so there is normally no cost to the consumer.

    One of the most important points about the advice that a qualified mortgage broker will provide is that while products from lenders will change, along with their rates, resulting in different lenders at different times being right for you, your mortgage broker will always remain the same. Your mortgage broker will be there for you throughout your life, assisting you in your financing needs and providing valuable advice. That’s only one reason, however. There are many more. I would urge you to contact your local mortgage broker and speak with him or her to find out just how beneficial a broker can be for you.

    Joe White,
    President
    Real Estate and Mortgage Institute of Canada Inc.

  29. albalegume says:

    Very unpleasant experience with mtg broker recommended by re agent. Interesting how every offer I submitted came back with a counter for the top amount of the pre-qualification letter the mtg broker gave ….to the re agent, not to me. I was already pre qualified with my bank and comfortable with them. I gave the mtg broker a chance, first he went on a rant about my bank, then he all he could do is tell me to pay my credit cards, keeps pulling my credit report, Keeps charging me to get rescored— and effectively lowered my credit rating with all his credit pulls, verbally give me a lower rate then the bank, but when it came to putting it in writing it was the same AND overall the costs were higher then the bank, then he said he’d waive origination fees but when asked for it in writing the fee was gone but the total cost didn’t change, so then I went with my bank, my RE agent contacts the broker who then sends an email “how can you do this to me after all I’ve done for you, I raised your credit rating, no good deed goes unpunished” Uh excuse me, you lowered it, I raised it by paying off credit cards. THEN suddenly the seller decides he’s not going to work with me if I use my bank??? I’m not a rocket scientist but this just doesn’t seem right.

  30. Dennis says:

    I have a question for all you financial wizrads.

    I notice this article was posted back in mid 2011. Recently, quite a few financial gurus speaking through the media nad various other sources are stating that it might be a good time now (late 2012) to lock down using a fixed-rate mortgage rather than a vraiable rate one. I’m thinking the same thing.

    Rates are the lowest they’ve been and many are stating that we thye mortgage rate bubble is going to pop, causing rates to start climbing (for Canada anyway).

    I am in a situation where I am safely employed but will shorly be reloacted. My wife will have to find work, but nothing is certain for now. For that reason, I am thinking of going with a 5-yr fixed rate mortgage until we can get truly settled in our new city.

    What do you guys think?

    Thanks

  31. Riyaz says:

    Hello Dennis;

    I think it is a good idea indeed. Yet, on a personal level I do not think that interest rates will climb just yet.

    Here is what I think will happen; the housing market will drop even further by at least 10% to 15% and the same with the commercial (I already see this trend). That being the case the bank will be inclined to hold the rate for the next little while.

    Now with a word of caution, when the rates rise they will do so on a regular interval. What I mean is that if the first increase goes from 3% (which is Prime right now) to 3.25% in say July of 2013 then the next increase will follow within 3 months and again in another 3 months after that. So within the year of the first increase do not be surprised if it ends up at 4%.

    If you are getting a very low rate right now, then sure go ahead and lock it in. If you are getting an ever lower rate for 1 year open (variable) then I would consider that and then lock it in after say another 6 months.

    A lot also depends on your personal finance, savings, job, mortgage amount outstanding, kids etc. Hard to give a blanket advise to an individual without knowing their true situation; financially speaking.

    Hope this helps. Anything we can help with, email me at Riyaz@MortgageSolver.ca even if it is just to pick my brain. Chats and discussions and idea sharing is always FREE and fun for me.

  32. TMActon says:

    Hey all. I am a current broker and former banker. I am reading throughout how focused us brokers are on our pockets. Have you considered how your bank sees you? Do you know when your profile is pulled up at one of the major five (which I worked for) the FIRST THING BESIDE YOUR NAME is your profitability score, to be followed by your net worth? Anyone want to guess what that means? Yup, if you scored high in profitability it is always used to build a case for borrowing or exceptions. want to match a broker rate? Plead to regional that your are an ‘A’ profitability client and you might get your mortgage rate dropped. No investments and a no-fee visa? mm, not sure we can do anything for you, sorry. mortgage under 100K? over 500K? You’d better believe that weighs very heavy on how you will be treated at renewal time. Just sayin’…so next time you judge, perhaps get the other side of the story. Oh, why did I leave the bank after 5 years? Because I got sick and tired of seeing preferential treatment to the wealthy/high net worth while we stood back and turning our palms up at the underdog – the lifelong loyal client of 40 years with a mere checking account, deemed ‘worthless’ to the branch. Hey, it’s all business, but you can’t suck and blow at the same time. Either we’re all guilty of profit or not :)

    • Robin says:

      TMAction; If MY clients can get a better rate from their bank for whatever reason I will tell them to go for it. My clients are mostly first time buyers, not big shots who can get special treatment from their banks.

      If someone is a big time hot shot with a lot of money and property, banks have a limit as to how much they will lend to one client for mortgages. So the client has to use a second bank, or a mortgage broker once they need that 4th or 5th mortgage.

      You don’t think clients will use my rates and pre-approvals as a bargaining chip against their banks? Happens all the time. Its part of this business.

      Other clients are happy that I have helped them, by showing them that they CAN buy property and putting them in touch with one of my realtors and my lawyers we’ve held their hand through the process from A-Z so when the bank offers them .05 less than my rate they say no thank you because the bank was not there for them when they were renting a moldy basement suite.

      As brokers we will never be able to capture the whole market, I help loads of people and really only get paid for every one in ten clients.

      I am not expecting to take every client from the banks but I am there for the clients who need me.

  33. Carrie says:

    Hi all. I have been reading all your comments and have found it very interesting. I am hoping someone can give me some advice. My husband and I are in our early 50s, and still have a fairly high mortgage. We are considering selling and buying a cheaper home so mortgage is not as much. Over the past 4 yrs I have not been able to work caused by accident at work, and have been on workers comp.
    I ran up to much on our credit cards, and did not pay on regular basis. Long story short, we now have bad credit, as well as a little outstanding debts. We have talked to our bank, scotia bank, and they have agreed even with our bad credit they will give us a new mortgage up to a certain amount, which is fine. I have asked them if there will be a penalty because we still have a year to go on this mortgage. She has not given me a straight answer, it’s well there could be or maybe not??? She also can’t tell me a rate as she says once we put an offer in and accepted than she will know… Does this make sense to anyone? Our realtor wants us to talk to her broker who also is with scotia bank. Can a broker really do anything for us with a bad credit record, or should we just stay with our bank, who I feel is treating us like we are bad people, although we have never ever missed a mortgage payment. Any ideas would be helpful. Thank-You.

  34. Gene says:

    Interesting article. I consider myself a well educated investor and I decided to use a mortgage broker to find the best rate for investing. The guy I used was heavily biased on variable rates. So we got along really well. I am paying prime less .75 and with the rates not going anywhere soon my 2.25% is pretty cheap. My bank wouldn’t give me this rate and the broker got me this rate with another bank.

  35. Victor says:

    Back on June 15 2012 I posted a bad experience that I had with a mortgage broker. I walked away and then I found a direct lender at aimloan.com. Everything was going well at the beginning wonderful rates. The problem with this lender was that it was dificult to communicate with them. You will have to send an email and then they could take 1 or 2 days. At one point I needed a document right away and they couldn’t send it to me on time. I walked away from them again and I decided to go back and get help from a local mortgage broker that wouldn’t care about my small loan. I was lucky I found them. Now, I’m days away to close a shortsale in South Florida.

  36. Michael says:

    My wife and I just bought a new home, we dealt directly with the lender instead of going through a broker. We saved about $5000 in interest because the broker couldn’t get us as good of a rate. One simple fact that people don’t realize is that the more middle men are involved, the higher the costs are for the end consumer because every one in the middle typically has a commission. I find brokers are like realtors in that they are solely concerned with their commission. The more middle men you can cut out, the more you will save :)

  37. William says:

    I have used a mortgage broker for the last 3 houses I bought and I couldn’t be happier. I don’t have time to shop out the banks and then do the comparisons and so on. I was never coerced into a 5 yr. fixed rate so I am thinking this article is based upon the assumption of lousy service…which is in all professions. They saved me fees that I would have otherwise incurred and I have even had better rates once with a bank through a broker than the bank was willing to give me personally. Just a very narrow minded article I have to say.

  38. Michael says:

    William, the lowest mortgage rates can be found in less than one minute using google. If this service is worth thousands of dollars to you, then by all means I would recommend using a broker. Brokers basically add to the list of middle men who ultimately end up costing the end consumer. We used the savings of not using a broker on a new hot tub :)

  39. Robin says:

    Okay Michael, lets not mislead people. You can VIEW the lowest rates on line, but you cannot access funds from a mortgage lender without a broker. Mortgage lenders don’t have staff like a bank, or branches like a bank. They have business development managers who let the brokers know about their products and the brokers provide them to their clients.

    You may think you are walking into a bank and eliminating middle men. However, the employee you meet at the bank basically is in that same “Middle” between you and the money you want for your house.

    These people are bank employees who are trained in the branch. They don’t have the education or insurance or accountability that a broker has and they certainly do not have access to the same range of products.

    They make up things and tell clients they are “Approved” so that the client will come back to them once they have an offer on a house. THEN they try to get the mortgage approved.

    Also, neither the bank, nor the broker is going to charge you a fee and I don’t know how much your hot tub cost, but mine was over 5 thousand for a small one.

    Either way someone is getting paid by the LENDER, either the bank employee or the broker. However the client never pays.

    Only clients who don’t qualify for an over the counter bank mortgage would have to pay fees and they would be going to a broker. Since they again, cannot access those options themselves.

    So I hope you are enjoying your hot tub, but I have my doubts.

  40. Michael says:

    Robin, didn’t mean to mislead anyone, all I meant is that the more “services” you get and “assistance” you receive from middlemen throughout the purchase process, the more commissions get paid and hence less money in your pocket. Don’t get me wrong, I am not defending any of the banks (they tend to push people towards products with higher margins and lend people more than they can handle). All I am saying is that working directly with a lender is much easier and can save serious money. Case in point, a friend of mine dealt with their lender directly and was able to negotiate a lower rate because no commissions needed to be paid.

    A lot of people are starting to realize that most middlemen in real estate are self serving and solely interested in their commissions.

    The more useless middlemen you cut out, the more you save! You can doubt all you want, it’s basic math :)

  41. Eclectic12 says:

    Too funny … from most of the comments, everyone seems sure that their good experience and/or bad experience defines what’s happening in the market in general.

    I’ve done both methods of getting a mortgage. Overall, using a broker has meant I’ve been able to focus on the features as well as confirming I can’t arm twist a financial institution into a better rate instead of basic tasks.

    I found it interesting that for the last one – both the broker rates and the negotiated rates with financial institutions I had relationships with were below the cheapest mortgage rates listed through several online tools. IMO, the more source of info, the more leverage to negotiate.

    The last person I heard doing it on his own at work spend twice the time, had to email copies of the cheaper offer he was asking to have matched or beaten as “no one offers that rate” and additionall had to argue to get mistakes in the offered mortgage corrected to match the discussed rates/prices.

    All that to end up with the same rate as I had.

    At the end of the day, like so many other financial servers – YMMV so do your due diligence.

    • Echo says:

      @Eclectic12 – arming yourself with knowledge and information about the most important financial decision you’ll ever make insures that you can help dictate the terms of the deal rather than having them dictated to you by someone who may not be looking out for your best interests.

      Thanks for your comment.

  42. Ralph Migliozzi says:

    Very strange reasoning for not using a broker. To say all brokers push the 5 year rate is completely eroneous.
    That is a stupid reason to avoid brokers and is patently not true. NONE of the brokers in this town advertise the 5/1 arm, period.

  43. As a professional in this industry I can say without a doubt, I would NEVER NOT use a mortgage broker. (But I would be sure to use the right one). Do your diligence and make sure they ask a tonne of questions regarding your wants and needs (prepayments, accelerated payments, when you plan to sell, what might come up, your risk tolerance etc.) I have seen way too many clients getting taken by the banks, to not be using a mortgage broker myself.

  44. Dan says:

    @Calgary Real Estate Agent do you think that is an unbiased recommendation considering many agents get a referral commission from the broker they recommend? But yes I do agree getting as much information as possible is key. If anything I’d probably use a broker before an agent

  45. John G says:

    This is an interesting debate.

    I’ve been a mortgage agent for a few years now and there always seems to be a client coming in who had a bad experience with another Broker/Agent and are wary with dealing with another one. If I had to put a number on it 30% of my business had a bad experience with a bank and or broker/agent.

    The way I look at it is this – I always look out for my clients best interests. I try to show them all types of options and what to expect in the future. I make my main goal to show the client what they can afford – not what they qualify for. I also try to show them how to pay the mortgage faster.

    I personally have not had any complaints about service that I am aware of. I’ve had many repeat clients and referrals. If a client is educated and allowed to make their own decision – they are happier in the end. Force feeding a decision isn’t the best way to do business.

    In terms of dealing with realtors, I work on a relationship basis, no money going back and forth. If someone comes to me and is already working with a Realtor I DO NOT offer a referral and DO NOT have someone call that client to try and scoop them. Rather I try and meet with this new agent to see if we can do business together. I expect the same from my referral partners.

    In terms of Dan’s response above. I am not sure why he would choose a broker before an agent. I know broker’s who are not good at what they do. I also know agents who have been in the business for decades who are far more knowledgeable than many brokers.

    The classification behind the name shouldn’t change your outlook on the abilities of the person you are dealing with.

    There will always be a bad apple out there. Regardless of the industry.

  46. Dan says:

    @John good point. We sold our house privately so am a bit biased. Personal preference I suppose and definitely based on past experiences as you mentioned

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