Mortgage Broker or Big Bank- Who to Choose?

Okay so you’re lookin’ to buy a place but don’t know whether to go with a mortgage broker or with the big bankers, and you want to get the best rate and the best deal possible (of course, what fool wouldn’t?).

Let’s explain the difference first off (because I didn’t know what the difference was too!).

Mortgage Broker

A mortgage broker is a professional who is a freelancing agent.  They go between the lenders and the borrowers (that’s you) and are paid a commission from the lenders for securing a good borrower.  They don’t work for anyone, they work for themselves, and have contacts to lots of lenders (think 100′s).  Think of them as a recruiter- they seek out people interested in borrowing for a home and fix them up with a lender that will work for them.  They can even go between you and the big banks for a mortgage.  They do work by getting to know you, calculating what you could be approved of, sending your application, and discussing with you what would work for you in terms of fixed or variable mortgage. Many people say they liked their mortgage broker because they can often get a better rate than if they went to the big banks themselves.  Some people also say that the mortgage broker helped them get approved even though their credit history wasn’t so hot.

Big Banks

A loan officer at the big bank is KIND of like a mortgage broker except they just work for one bank.  A loan officer can sit down with you and talk to you just like a mortgage broker to see what your best fit is in terms of getting a mortgage.  They can negotiate with you for you to get the best deal on a mortgage (e.g. the best fixed rate they have-it is often not the posted rate…if you get the posted rate, then you are a sucker, my friend).  They get paid by the bank, either through commissions, or salary + commission, or just salary.

So who to choose?

Let’s do a pros and cons list so we can decide.

Mortgage Broker Pros:

  • They can meet you on your time (I felt bad, I made one mortgage broker meet me on Valentine’s Day while her spouse was waiting for her outside)
  • You often get a very competitive rate
  • They can get you approved for more (which can be a bad thing too, though)
  • If your credit score isn’t good, they can find a lender who will take you on
  • You don’t have to negotiate, they will do the negotiating for you
  • They can sometimes pay for things like inspections or appraisals out of their own pocket (they get less of a commission, but they may get more word of mouth advertising, and you may go back to them once your 5 year term is up)

Mortgage Broker Cons

  • The lenders that offer the good rates are often on the other side of the country
  • The lenders that offer good rates are often smaller, with names of institutions that you haven’t heard of
  • Some may worry that mortgage brokers wouldn’t worry if you are approved for a mortgage you can’t handle, because they would get more commission
  • You might not be able to sit down with the mortgage broker face to face (depending on which mortgage broker you go with)
  • They can approve you for more, even if your credit score is bad (this can be a good thing too- depending on your perspective)
  • There’s no supervisor to talk to to complain if they make a mistake

Big Bank Loan Officer Pros

  • You can see them on your time too (they have mortgage specialists who can meet you in the evenings, or on weekends)
  • They can give you perks within the bank like: free banking, free safety deposit box etc.
  • They often pay the appraisal fee
  • Face to face person
  • Big bank- you know they likely won’t close down
  • Can have home equity line of credits
  • There is someone to talk to easily (just walk into the bank or call the loan officer) if you want to do something with your HELOC, or if you want to talk about changing from fixed to variable or vice versa
  • They may have lower closing costs because they’ll pay for some of the costs

Big Bank Loan Officer Cons

  • The big con is that you have to be able to negotiate (unless you get a joy ride out of it like I do) or else you won’t get a good deal
  • You have to do the shopping around (go to different banks etc.) which can be time consuming
  • Their rates often aren’t as good as mortgage broker rates
  • If your credit score isn’t up to snuff, they might not take you on
  • You might need to get “supervisor approval” for requests or whatnot

So in the end, as always, it’s your decision (hey, it’s your life- live it the way you want it!).  I went to one mortgage broker, and two banks (with two different branches of each bank).  Negotiating with the big banks was a huge headache- I was getting frustrated that the particular loan officer wasn’t budging on her best interest rate.  I also didn’t really like her too (she seemed… kind of fake), and was hesitant that I would have to deal with her in the future if need be.  I ended up going with another loan officer of the same big bank (Royal Bank) who gave me a great interest rate with no negotiating, really.  The big banks’ financial advisers (or whatever they were) even got in on the action because they probably get a commission too.  The mortgage broker was really nice, but I didn’t end up wanting to go with a bank that I couldn’t even visualize (unless of course, I google mapped it lol).

Related: Porting a Mortage

I think that if you have an unblemished credit history, then shop around at the big banks to see what you can get.  If your credit history isn’t the best, then going through a mortgage broker might be the best thing for you.  If you’re not a fan of negotiating and/or hard pressed for time to do this, then perhaps a mortgage broker might be for you, too.
Good luck with your decision- and think long and hard about things, because it is the biggest financial decision you will make in your life!

About

Young is a writer and former owner of Young and Thrifty and the main "twitter' behind Young and Thrifty's twitter account. She lives in Vancouver, BC and enjoys long walks on the beach, spending time with her anxious dog, and finding good deals. If you like what you read, consider signing up for email updates.

22 Responses to Mortgage Broker or Big Bank- Who to Choose?

  1. My philosophy is to shop around at both banks and brokers and then chose which ever party has the best deal.

    When I bought my first home last year, the most amount the mortgage brokers could preapprove me for was only $160K. My credit was fine, but the 32% housing cost ratio was my limiting factor. I didn’t have a lot of savings back then so there was no way I could get what I wanted, a 2 bedroom apartment. But fortunately a senior financial adviser at CIBC let me borrow over $200K. So I ended up getting the home that I wanted with only 5% down payment and a $215K mortgage. And the interest rate is the same as the broker’s offer. I couldn’t be happier.

    It appears the 32% and 40% rules are just guidelines, and exceptions are always made by senior personnel like this adviser. Mortgage brokers usually follow those rules because their lending partners don’t personally know the borrower, so they don’t want to take the risk. But individual lenders like banks can be more lenient if they meet with possible borrowers and decide that they have a strong sense of financial responsibility. Everyone is different. When it comes to affordability ambition speaks louder than percentages. So I like big banks for this reason. But I’m not a loyal client, as soon as my term expires in 3 years I will be on the hunt again for the best possible deal.

  2. Broker, definitely. In Ottawa, I recommend Marie-France Lavigne at Dominion Lending Centres. She’s done well for me twice now, and once for my daughter as well. She knows her stuff, is efficient and has good availability and has good staff as well. I have learned a lot from her.

  3. As an addendum: I have excellent credit, but using a broker saves me time, and I’m not the best arm-twister.

    • @heffer- Thanks for sharing! That’s how I felt too, the big banks approved us for much more (though I wont’ be using that much!) and knew our histories etc. It also helps if you have family or friends who recommend you to the big banks, they usually can be a bit more flexible when they know you. Glad you got to get the home you wanted =)

      @2hirondelles- Thanks for sharing- hope Ottawians are reading this and contact her =) Yes, Dominion Lending is the big boy of the mortgage brokers- the one I talked to was from there too.

  4. I developed a relationship with my big bank, which has allowed me to leverage my status at the bank to get more credit. For example, if you are a “Citi Gold” client, you get an extra $500 credit off the lowest fees.

    You just need to go with someone you trust. And if you don’t trust nobody, then go with your big bank who will hopefully not screw you over. The lowest rate is the best.

    Also, if you have a loan approval app from a big bank, you look like a better candidate when it comes to buy.

    • @Financial Samurai- that’s what I’m planning to do.. hopefully develop a relationship with the bank. Good know know that big banks have clout when it comes time to buy =)

  5. I was actually surprised to read the conclusion of this post, which seems to suggest that the pros and cons between banks and mortgage brokers are somewhat even.

    Having been through both experiences, I can tell you that I have consistently found better mortgage rates through mortgage brokers. They are the experts, who generally are beholden to no bank, and they know where the best rates are.

    In my experience, mortgage brokers will give you two or three options, and let you choose the option that suits you. This suggests that their is no hidden agenda behind the mortgage being proposed.

    My last mortgage broker also had a far more sophisticated understanding of the interest rates than did my bank’s mortgage specialist.

    I would recommend Rob McLister in Vancouver (http://www.canadianmortgagetrends.com/). I used him even though I am in Ottawa. And no, I don’t work for him nor am I related to him in any way.

    • @Maggie’s Farmboy- Thanks for sharing your experience. I really do believe that the pros and cons between mortgage brokers and banks are somewhat even.. it really depends on whether you are considered to have a good credit rating, relationship etc. for a big bank to give you a good rate and to work with you. The mortgage brokers do get commission, even though they have no hidden agenda. Canadian Mortgage Trends is a great resource, thanks for sharing (I forgot to mention them!).

  6. Good post, I like the pros and cons part. I have always used my big bank to negotiate (I got good discounts) but I’m leaning towards using a broker next time. Observing and hearing from others, I’ve heard some mortgage brokers really go to war for you…and that’s a great thing. Unless you get a very competitive rate from your big bank, go with a broker.

    Here is a great site to get started:
    http://www.ratesupermarket.ca/

    Disclaimer, I don’t work for them; don’t advertise for them, I’m just sharing :)

    • @Financial Cents- Thanks! You know I love pros and cons lists. =) That’s good if you can find a broker who will really advocate for you- just like many salespeople there some really good ones (who will pay for a lot of your closing costs) and some bad ones (who are just their for the money). Rate Supermarket is really good- they’re very objective and you can check the rates that are available nationwide.

      • I realize this is an old post, But you say mortgage brokers are getting a comission, from the lender they use. Are the people who work at the bank not getting a paycheck? Would money not be a factor to both parties? More often than not the banks pay the broker a fee, so they dont have to pay for a building and a whole bunch of employee salaries. Brokers are looked at as a cheaper option, for the lenders. So forking over 2500 dollars for a deal, when the broker assume s all expenses, and risks doesnt sound that biased to me. Banks also represent themselves, Brokers represent the borrower, going to a broker is like getting someone to negotiate with a used car salesman for you, at no cost to you. Going to a bank is like fending off the car salesman your self when you know nothing about cars. That is just my opinion.

  7. Just a note on broker commissions – we bought our first place last year, and our broker got a set commission from the lender regardless of the mortgage amount, so we were not pushed to go for more than we felt comfortable with.

    • @Jenn- thanks for clarifying =) Most mortgage brokers won’t approve you for more than a bank would. I find the big banks to be more lenient with the mortgage amount, whereas mortgage brokers are more cognizant of the maximum mortgage that one should feel comfortable with.

    • @Financial Samurai- Thanks for the heads up- though I’m not sure if they have citimortgage here up north..!? Good deal though!

  8. I recommend going with a broker. In addition to the benefits described above, the broker will most likely only obtain one credit report and reuse it at all banks.

    If you shop around yourself you end up with several credit inquiries (a separate credit check from each bank) which can slightly impact your score.

  9. Shopping for a mortgage by yourself will cost you 1 credit check for each bank which we all know can negatively affect your credit score. Going through a broker only costs you 1 credit check and 1 phone call or visit.

    • All you really need is the advertisements at other banks Brownbrady. The other bank/lender can’t possibly verify if you’re bluffing or not. These places all know the competition is heating up in this low-interest environment.

  10. Hi Liked your article, just have a few comments to make

    1. Never shop for the a mortgage based on rate as a discount of .15 or .2 % percent will not make you a millionaire, always looks what is the prepayment terms, penalties, portability etc.

    2. While shopping for a broker look for affiliations such as AMP (Accredited Mortgage Professional) designate and how long the person has been in the business as if you do have a problem you can actually complain to CAAMP the governing body who can investigate your complaint if any.

    3. For First time home buyers always try to work out an actual cash flow analysis before going in to buy a house. Like you said in your article “sometimes getting approved for more than expected can be a bad thing”

    4.Always, watch out for brokers trying to push mortgages from an unknown lenders, always demand for more than one quote compare the apples to apples not apples to oranges. Brokers might sweeten the pot with one deal as they could be getting a bigger commision from that lender ( It does happen ! don’t rule it entirely out)

    Getting a good broker coud also be an art, try to go by a referral if possible.

    • Hey Johnny, here’s my response:

      1) Not millions by 10s of thousands which is enough for me to worry about! Obviously the prepayment, penalties etc, are important, but each individual situation will determine what is most important.

      2) I have little faith in any self-regulatory body.

      3) Definitely agree

      4) For sure.

  11. Hello all:

    It really saddens me to read articles like these. While I am a very open to both sides, and yes, I am a licensed mortgage broker in Alberta, there are too many items to correct in your article.

    What I would like to say is the following:

    1) Yes, you should shop around. But please bare in mind that it is not the interest rate that is the most important, but rather the product (rate+lender+terms+amortization+etc).

    2) When you do shop around on your own at each of the “big” banks, not only is it it “1 credit check” each, but it does cost you a hard credit check, which means your beacon score is reduced by 10pts each time.

    3) Not all mortgage specialist (big banks) or mortgage brokers are good OR bad. Word of mouth – referrals are the best way to source the individual you should be interviewing. After all, regardless of who you go with, they are working for you.

    4) In Alberta (like most some provinces but not all), the rules are much more stricter for mortgage agents. For example,

    (a) I have to be in good standing and renew my licensed each year.
    (b) If I have a client that is unhappy with my work and we cannot fix it, the client goes to the next step up – my broker, who is ultimately held responsible as well.
    (c) If my broker (who is responsible for all agents in his brokerage) cannot solve an issue, and if it violates the Real Estate Act (of Alberta), than the client files a complaint with the Real Estate Council of Alberta (www.reca.ca). RECA is the regulating body in Alberta responsible to protect the consumer and regulate the industry in the province as well as issue (or suspend) licenses. They regulate: (i) realtors, (ii) mortgage agents, and (iii) appraisers…(and (iV) some residential property management).

    5) When purchasing or refinancing (or changing the terms of your mortgage), all LENDERS tend to use CMHC first and Genworth second (there are a couple others). This point is only to advise that ALL the lenders have each their own policies/guidelines to abide by, as well as those of the premium insurer (CMHC, etc). These guidelines are what keeps each persons qualifications in line with (i) income, (ii) credit, and (iii) debt servicing.

    6) If you are putting less than 20% downpayment, then every person purchasing has to abide by the guidelines and policies imposed. The GDS/TDS (aka: debt servicing) that someone speaks of the comments of 32/40…is controlled by CMHC (and other insurers). This is a rule, not a guideline. Additionally, these values are no longer in place as the government (CMHC) continues to change them and make more rules. The debt servicing ratios are applicable on various variables as discussed at the end of point #5.

    7) A mortgage agent (broker) in Alberta must pass an education certification, and be able to underwrite the file when they meet with their client. This just means that they really know their stuff and will get you the best mortgage rate and product for your current and future needs.

    8) The mortgage specialist at the “big Banks” do not underwrite as they send it to another department. In where most cases your file has to get approved by that second department, regardless of what the mortgage specialist may have told you.

    9) The so called “big Banks” all have subsidiaries (or investments…or child companies, etc), guess who they are? Some of the “small banks” or the “lenders across the country”. That is why a mortgage agent/broker will always refer to the mortgaging company as a “lender”. For example, CIBC has First Line. When a client receives a mortgage for First Line all the following corresponds has CIBC logos. Scotibank has Scotia Mortgage Authority, etc. The list goes on.

    The final point which I wish to drive home is this…there are pros and cons on both sides. I have some very amazing friends that do a fantastic job while working at the big banks. I have referred clients directly to them (TD, Scotia etc). I also have some very fantastic mortgage agent friends as well that I have referred clients to. BUT there are some very bad people on both end that should not be doing what they are doing.

    Be smart, educate yourself and interview the people that will be providing you with a mortgage. This is one of the largest financial decisions you will be making and you are providing some very personal information to them. Regardless of a “big bank” or a mortgage agent, arm yourself with questions and do what is best for you.

    An example: One of my most recent clients only saved $953 dollars by using my services on a mortgage renewal. She asked me what was the point of leaving the big bank she was at. The difference: (a) 0.05% less interest only meant $953 less payments in the next 5 years, (2) the interest versus principal back end calculation, meant that over $18,000 was shifted over from the interest to the principal. Meaning – she is able to pay down her mortgage down faster.

    Each person has a unique need. The person that ends up helping you should be working only for your best interest. Choose wisely.

    As an after thought, I have only been in this industry since 2009, and knowing what I do know, I will always use a mortgage agent/broker. Or one of my friends that was a mortgage agent/broker and now works at one of the big banks.

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