Mortgage Broker vs Bank, Canada: Which is Better in 2023?

Buying a home is one of the most significant financial investments you’ll make, so it is a good idea to go through the right steps.

Banks used to be the only go-to for mortgage needs. Now, mortgage brokers have changed the narrative. 

You can get your mortgage at the best rates without going to the bank. However, you need to know which option suits your situation best out of using a mortgage broker vs a bank.

Let’s discuss all you need to know about the mortgage broker vs bank Canada market relationship.

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Mortgage Broker vs Bank, Canada: The Usual Types of Mortgages

Renewers

If your mortgage term has ended and it’s time for a renewal, you have two options. You can decide to stay with the lender that authorized your first mortgage or shop for a new lender. You might be able to get a better mortgage rate or change the terms on your mortgage penalty-free if you’ve waited until it’s your renewal date.  

First-Time Buyers

Is this your first home? There are incentives put in place for first-time homebuyers. These incentives make it easier to negotiate a mortgage even though you are just entering the market. 

Repeat Buyers

This option covers people who have sold a home and want to buy a new one. If you fall here, it means you have some knowledge of the process since you’ve gone through it before. Note: If you are ending your contract before time, you may attract penalties.  

Reverse Mortgages

This option is available to seniors. Homeowners can take a portion of the equity in cash out of their home to settle home repairs, living costs, travel, and other bills. 

Refinancers

Some situations can arise that can make you want to refinance your mortgage and increase the funds accessible to you. For instance, if you are beginning renovations on your home or you are planning to consolidate debt. In this case, a home appraisal has to come over and determine your home’s value.

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Mortgage Broker vs Bank: How Mortgage Brokers Work

Mortgage brokers are financial professionals that serve as middlemen or intermediaries between borrowers (potential homeowner), and lenders. They do not advance mortgage loans with their funds.

Instead, they help prospective homeowners shop for the best rates, negotiate, handle the paperwork, and receive a commission from the lending institution after successfully completing the deal.   

To achieve this, mortgage brokers sit with clients to weigh their needs and financial status. They collect vital data and documents like tax returns, assets and investments details, income, credit reports, and pay stubs.

This information is what they then use to gauge how much the customer can afford to borrow. Once that’s done, they take the information to the bank or another lender to get the loan approved.  

Mortgage brokers work with many lenders, so they have access to several products at several price points. Therefore, they know the lenders that loan money in specific areas, the ones that avoid or accept loan applications for particular types of homes like condos, family homes, etc., and those that only offer a certain type of mortgage. 

Basically, mortgage brokers offer convenience. They do the heavy-lifting and save you the stress and cost of visiting multiple lenders to source for the best rate and subsequent approval.

Loans with higher mortgage rates may have “rebate” pricing or Yield Spread Premium (YSP). This money can be used to settle the mortgage broker’s commission and other closing costs for the borrower. On the other hand, for loans with lower rates, the borrower settles the broker’s commission. Most times, it’s about 1 percent of the loan.    

When comparing the mortgage broker vs bank Canada market and trying to decide on one, it’s important to weigh both the upside and downsides. That’ll ensure you choose the option that suits your situation best. 

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Pros of Using a Mortgage Broker

1. Versatility

 Mortgage brokers are usually very versatile regarding communication and meetings. Many brokers are ready to have meetings through email, Skype, and text. You can even avoid physical meetings completely and have all your dealings online with an online mortgage broker. They are also flexible enough to conduct meetings even after business hours.

2. Better Access to Lenders

Mortgage brokers have access to more lenders than a bank, and with their vast knowledge and tools, they can help you get the lowest mortgage rates. This is especially beneficial to individuals with low-income earnings or poor credit history. For such ones, a mortgage broker might be the only means of receiving a mortgage loan. 

3. Saves You Time and Effort

There are hundreds of lenders in the market, and to get the best rate, you’d have to research them, negotiate, and contact each one of them. Very time-consuming! This is another perk of mortgage brokers.

Since they have access to many lenders, including private lenders, big banks, and other financial institutions, they make the process easier and faster. They are not attached to one lender like the major banks, and you have a variety of options to gauge.  

4. Negotiation

For mortgage brokers, the goal is to get you the best rate possible and not sell you a particular mortgage product like the banks. So, they go all out to negotiate for you and get you highly competitive rates.  

5. Free Specialized Service: 

Another pro of using a mortgage broker is they won’t charge you for shopping around for the best rate. Rather, the lender pays them a finder’s fee. So they’ll provide personalized services for you like helping you finish your application, advising you on the needed documentation, informing you of the next steps, etc., at no extra charge.  

6. Higher Chance of Getting a Mortgage

Comparing mortgage broker vs bank, a mortgage broker can usually get a client that has been rejected by traditional banks. This is because they work with more lenders, including those ready to take a little more risk. 

In tricky financial situations, a mortgage broker can work with private, non-traditonal lenders or B-lenders. These lenders will then consider each unique case’s details rather than numbers. However, you want to make sure you read the print thoroughly. 

This is because even though a private or non-traditional lender can get you the needed funds, it can come with unfavourable terms, a higher interest rate, unexpected mortgage broker’s fees, etc. 

7. Mortgage Fees Management

Taking on a new mortgage or using a new lender can come with different charges like application fees, origination fees, appraisal fees, etc. However, if you are going through a mortgage broker, they may be able to negotiate these fees and get the lenders to waive some or even all of them.     

8. Ease of Access

With just the click of a mouse, you can easily use online rate comparison sites to compare rates from different mortgage brokers easily. Then you can use that information to decide on a broker.

SEE >>> How to Get a Mortgage with Bad Credit in Canada

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Cons of Using a Mortgage Broker

1. Potential Conflict of Interest

Lenders pay mortgage brokers a commission after closing a deal, which can lead to a potential conflict of interest. How? If a specific lender pays a higher amount, a broker may be more inclined to recommend them more often rather than use up the pool of lenders he has. 

However, this is only a major concern if the recommended lender doesn’t have the best rate for your situation. You can avoid this issue by using more than one mortgage broker and comparing their offers. 

2. Expensive and Complex Loan Conditions

In addition to the mortgage rates, mortgages also come with conditions and terms like porting rules, penalty clauses, payment deferral options, etc. Even when you get the lowest rate, it can come with unfavourable complex conditions that can drive up the costs in the long run. 

The mortgage broker should inform you of these differences and explain them, but that is not always the case. Therefore, you can’t just take everything offered to you hook, line, and sinker. You should ask the necessary questions.   

3. Not All Lenders Work With Mortgage Brokers

Some lenders (e.g, some big banks), only work with their in-house mortgage specialists. They don’t pay mortgage brokers a commission or finders’ fee.

Therefore, if you choose to use a mortgage broker, you may not have access to these lenders as the broker has no incentive to check or recommend them. That can be a disadvantage if they offer better mortgage terms. 

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Mortgage Broker vs Bank: How Banks Work for Mortgage

Using a bank for a mortgage can come with an additional level of security and comfort, especially if it’s a bank you’ve been with for years. They’d have a clearer picture of your complete financial state and goals and help you work with them. 

Unlike mortgage brokers, banks advance mortgages with their funds. They work directly with prospective homeowners to offer retail-level financing (consumer-direct lending).

They have loan officers, underwriters, funders, and processors that work for them. Having a personal, longstanding relationship with one of these financial representatives can help you receive the lowest rate possible.

The loan officers are the bank’s sales force. They originate loans and earn commissions on them. Sometimes, they offer the same loan at different price points—for example, no-cost loans with higher rates and expensive loans with lower rates. 

Mortgages help the bank to secure a profitable, long-term relationship with the homeowner. So, they often attract clients with benefits like a cashback bonus, paying the home’s appraisal fee, and more. 

The decision to use a mortgage broker vs a bank depends on your needs. 

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Pros of Working with a Bank Directly

1. Perks from Familiarity

If you have a good pre-existing relationship with a ban, you may be offered special perks and competitive rates as a familiar, loyal customer.  You may also have some negotiating power. 

2. Safety and Convenience. 

Some people feel safe working with a bank since they can walk into a physical branch anytime they have questions regarding their mortgage. Working directly with a bank gives you the chance to have all your financial resources in one place, which is quite convenient.  

3. One-on-One Communication

If they are your regular financial service provider, you get to discuss face to face with a familiar person who knows both you and your family’s financial status. The mortgage specialist will take more time to explain the mortgage details like penalty clauses, port a mortgage, and more. 

4. Exclusive Perks 

Some perks are only available when you obtain your mortgage directly from a bank. You may not get them if you use a mortgage broker. An example is an access to a Home Equity Line of Credit (HELOC).

SEE >>> Best Bank for Mortgage in Canada

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Cons of Working with a Bank Directly

1. Stricter Policies

Banks are A-lenders, so they often look for borrowers with the best credit scores and avoid risks and people with rocky financial history. They have strict policies and may not always be able to offer you what you are looking for. 

Note: Your credit score is the total number rating given to you due to how you’ve handled your previous credits.  

2. Fewer Mortgage Options

A bank loan officer is more interested in selling their in-house mortgage products than in offering the best rate. So, you’ll be losing out on the opportunity to compare different rates from different lenders.

3. Less Competitive Rates

Major banks usually offer less competitive rates than you’ll get if you work with a broker. You might be able to negotiate a discount, but if you can’t, you’ll have to pay this additional money through your mortgage’s life span. 

If you’re are self-employed, have a low-income, high amount of debt, or have a history that includes a recent bankruptcy, a mortgage broker might have a better chance of finding a lender for you.

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Mortgage Broker vs Bank Canada: How Brokers Finance Mortgages

The mortgage broker assists in the application to the home appraisal stage while the financial institution provides and services the loan.  After the closing, the bank or lender continues to collect the payments. However, if you wish, you can have your mortgage broker help you with this through your mortgage’s lifespan.  

Many major banks in Canada sell their mortgage products through mortgage brokers. This is a list of the most popular lenders used by brokers: 

•  Scotia Bank
• CIBC Firstline
• Merix Financial
• TD Bank
• Tangerine
• MCAP
• Macquarie
• Home Trust

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Mortgage Broker vs Bank Canada: Find the Best Mortgage Broker Closest to You

If, after comparing mortgage broker vs bank Canada, you choose to go with a mortgage broker, the most difficult part is finding the right one for you. While word of mouth and referrals can help, you can follow these additional steps to make it easier:

Conduct Your Initial Research

The usual first step is to google it. Include your city in your search so you can get more specific results. 

Take Advantage of Government Resources

After using google search to know the brokers around you, you can use government resources to advance your search. There are lists of licensed mortgage brokers gathered by provincial governments. You can use these lists to see if any broker that may have appealed to you is officially recognized. 

List out the Important Questions to Ask

These are questions like:

• What are the services you offer? 
• How will you contact me?
• Will your charge be based on my situations or credit history?
• What is your compensation? 
• What actions are expected from me?
• What should I expect from our relationship? 
• What’s your level of experience?
• How will the information I provide you be used?

Set Up an Appointment

Once you’ve determined who you are calling and what you are asking, schedule your first appointment. You’ll usually find their contacts on their website so you can d=send an e-mail or put a call through to them. 

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Mortgage Broker vs Bank: How to Qualify for a Mortgage with Both

Your lender will use your income and debt to calculate your mortgage amount, whether you go through a mortgage broker or a bank. Lenders raise interest rates and dish out strict rules to wean out customers that can’t carry the costs. So educate yourself about mortgages to get better interest rates and save money.  

Before you consult a mortgage professional, try to learn the terminologies and potential options so you can ask the right questions. Note the amount you’ll be able to afford as a down payment and monthly payment before your meeting. 

In fact, you can check your credit score ahead of time so you won’t encounter any surprises. You can calculate this easily with companies like Transunion and Equifax, and it won’t count as an inquiry on your credit report since you did it yourself. 

However, you should be cautious when you are shopping around for mortgages because your credit scores get affected each time a lender pulls your report. Begin with a pre-approval. If you don’t get accepted, you can then work on your situation before you start a property search.

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FAQs on Mortgage Broker vs Bank in Canada

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