Buying a home is one of the most significant financial investments you’ll make, so you have 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 bank.
Let’s discuss all you need to know about the mortgage broker vs bank Canada market relationship.
Mortgage Broker vs Bank: A Brief Overview
Buying a home is a huge investment. Many financial institutions and individuals in the mortgage industry help people access the financial help they need to make this investment possible. They include mortgage brokers and banks.
While mortgage brokers act as middlemen that help consumers get the most suitable lender, banks are direct lenders that check if you are fit for the loan before granting it. The table below summarizes these two entities using two considerations:
|Direct Mortgage Provider||No. (They don’t provide mortgages, they look for the best rates).||Yes|
|Rates||They offer competitive rates. Their pay comes from securing you a loan, so getting you the best rates possible is in their interest.||Rates are not always competitive. They are only motivated to sell you their mortgage products.|
Mortgage Broker vs Bank, Canada: The Usual Types of Mortgages
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.
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.
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.
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.
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.
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.
Pros of Using a Mortgage Broker
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.
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 unfavorable 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.
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 unfavorable 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.
Mortgage Broker vs Bank: How Banks Work for Mortgage
Using a bank for 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 cash back bonus, paying the home’s appraisal fee, and more.
The decision to use a mortgage broker vs bank depends on your needs.
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).
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 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 cant, 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.)
Mortgage Broker vs. Bank: Comparison
What sets mortgage brokers and banks apart is while banks can only present their products, brokers can offer multiple mortgage products. Independent mortgage brokers are mortgage professionals who are licensed and have access to several lenders and mortgage rates.
These mortgage specialists help you negotiate the lowest rate, and since they get a high volume of mortgage products, they can offer you discounts directly. On the other hand, as we said earlier, banks can only offer you their mortgage products. The table below compares the mortgage broker vs bank Canada market.
Mortgage Broker vs Bank Canada Comparison Table
|Examples||CanWise Financial, Dominion Lending, The Mortgage Centre, Safebridge Financial, etc.||RBC, CIBC, TD, Scotia, BMO, Tangerine.|
|Canada Market Share||47%||53%|
|Overall Description||They are licensed mortgage professionals that have access to multiple lenders and rates. |
They serve as an intermediary and get paid a commission by the lender offering the mortgage product.
|These are chartered banking institutions with a credit card, personal banking, loan, and mortgage services.|
|Application Process||They put the application together.||They also put applications together.|
|Negotiations||They will negotiate rates for you.||You can negotiate rates, but you’ll do it yourself.|
|Familiarity||You’ll have to look for a mortgage broker you can trust and do the work from scratch.||If it’s the same bank you use for your other financial needs, you’ll be more familiar with them.|
Mortgage Broker vs Bank Canada: How Brokers Finance Mortgages
The mortgage broker assists in the application to 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
- Home Trust
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.
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 vs 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.
FAQs – Mortgage broker vs Bank
Are mortgage brokers better than banks?
Mortgage broker vs bank?
The primary difference between both options is a bank’s loan officer offers only the product the bank provides, while a mortgage broker is an intermediary that shops around for the best rate from multiple lenders. Many people go to a mortgage broker to get the best rate.
Is it worth using a mortgage broker?
When deciding on mortgage broker vs bank, one advantage of using a mortgage broker is the lower mortgage rates.
By hiring a broker, you can get a lower interest rate on your mortgage. Your mortgage broker will help you negotiate lower fees or closing costs. You’ll also have access to a larger pool of lenders, which puts you in a better spot for a terrific deal.
Is it easier to get a mortgage through a broker?
Mortgage broker vs bank Canada?
Getting a mortgage through a mortgage broker is super easy. They have access to dozens of lenders and look for the best one for you.
Who pays for a mortgage broker?
Mortgage brokers get paid commissions or fees by the lender after the loan has been closed. Therefore, working with a broker should not affect how much you pay for your loan. Broker’s commission typically ranges from 0.50 percent to 2.75 percent of the principal loan amount.
Which is better real estate agent or mortgage broker?
Real estate agents link buyers and sellers, while mortgage brokers link buyers and lenders. Real estate agents help their clients to buy or sell a property, while mortgage brokers help their clients to get finances to acquire the property.
Should I lock in my mortgage rate today Canada?
Locking in your rate may not give you a substantial financial gain, but it provides you with peace of mind. You can consider a fixed-rate mortgage rate term if you are worried about rising rates.
Can you negotiate mortgage rates Canada?
Yes, whether you are working with a mortgage broker vs bank Canada, you can negotiate. Banks have advertised rates and discretionary rates.
Discretionary rates are the more affordable rates you’ll get if you negotiate successfully. For brokers, they go out of their way to help you negotiate the best rate.
Last Thoughts on Mortgage Broker vs Bank
Mortgage broker vs bank Canada? Apart from these two, other alternatives you can consider when shopping for mortgages in Canada are credit unions and online banks. Credit unions offer several financial products like the major banks at better rates.
Therefore, when you are shopping for a mortgage, you have to shop around. Have a clear knowledge of how you intend to maintain your personal finance. It will make your decision easier.
When you get a favorable rate, do the work and check through the prints for penalty clauses. An online rate comparison site will help you get the best rates if you are going with a mortgage broker.