You’re lookin’ to buy a place but don’t know whether to go with a Canadian mortgage broker or with a big bank, and you want to get the best mortgage rate & best deal possible (of course, what fool wouldn’t?).
Or maybe you’re already in the place of your dreams and just looking to get the best rate when your mortgage term expires.
Here’s the difference between the mortgage broker I eventually used and the big banks that I inquired into before making my decision.
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 they compare the rates from dozens of lenders. It’s important to remember that mortgage brokers are not actual lenders themselves.
Think of them as connectors – they seek out people interested in borrowing for a home and fix them up with a lender that works best for their situation. They can even go between you and the big banks for a mortgage (although there are usually cheaper options). Mortgage brokers work by getting to know you, calculating what you could be approved for, sending your application, and discussing with you what would work in terms of a fixed or variable mortgage & fixed or closed term. Many people report they liked their mortgage broker because they can often get a better rate than if they went directly to a big bank. I also know several people who say that the mortgage broker helped them get approved even though their credit history wasn’t so hot (possibly to their long-term detriment – but hey, it’s a free country).
Online mortgage brokers have quickly snagged a huge share of the mortgage broker market. By allowing customers to easily browse the best rates from across Canada for their specific situation, online brokers allow you to look and compare options without any pressure sales tactics. By operating online and cutting their margins to the bare minimum, they can pass along those savings to their customers.
Best Mortgage Rates Canada
When you go to one of Canada’s major banks for a mortgage they will usually have you sit down with a loan officer. They’ll guide you through some of terminology involved with mortgages and make a recommendation to you based on what you tell them. Big bank loan officers will usually negotiate with you if you play hardball. (Hint: the rate they post on their website and in their brick-and-mortar locations is definitely not their best offer). Loan officers usually get paid through some combination of salary + commission + bonuses, and they won’t ever recommend that you look elsewhere. (Unlike a mortgage broker, loan officers have no real incentive to snag you the best deal possible – indeed, it’s sort of the opposite.)
So, who to choose?
Mortgage Broker Pros:
- They can meet you on your time – or if you go with an online broker they make it very easy to communicate via email, Skype, etc.
- You get to see all of your options and are basically guaranteed to get the lowest rate possible.
- Brokers often have more flexibility in terms of getting you approved with non-traditional lenders.
- If full-contact negotiating isn’t your thing, have no fear, mortgage brokers will do the dirty work for you.
- They will sometimes pay for things like inspections or appraisals out of their own pocket. The idea here is that they wish to secure your loyalty for the long term so that you’ll go back to them for your next mortgage term, as well as recommend their services to others
Mortgage Broker Cons
- The lenders that offer the best rates might not be in the same geographic location as you.
- The lenders that offer the best rates are sometimes smaller. This lack of familiarity scares some people (but doesn’t make any real difference in the long run).
- You might not be able to sit down with the mortgage broker face-to-face. Personally, this is a positive as I prefer to send an email anyway.
- Some mortgage brokers might be motivated to approve you for a loan that you shouldn’t get approved for simply so that they can snag the commission. In theory, a major bank that has access to your full financial picture might be able to give you more personalized and better advice in this area. I’m not sure this actually happens very often in practice, but it is a relevant consideration.
Big Bank Loan Officer Pros
- Usually pretty flexible in adjusting to how you prefer to communicate, including face-to-face meetings.
- Canada’s major banks operate coast-to-coast, so a brick-and-mortar location is almost never too far away.
- You can use your mortgage as a big negotiating chip in your overall relationship with the bank. In other words, you can demand free banking, a free safety deposit box, or other perks, in exchange for bringing a large part of your business over to them.
- Banks will often pay the appraisal fee or some of the other closing costs.
- Easy to work in a Home Equity Line of Credit (HELOC) into the deal. These can be handy little tools, but can also get you in substantial debt trouble if you’re not careful.
Big Bank Loan Officer Cons
- A higher interest rate on your mortgage (just a few tenths of a percentage point will mean thousands of dollars less in your pocket).
- You only get to negotiate with one institution – meaning you don’t know what leverage you have because you don’t know what others are offering.
- Getting a competitive rate involves shopping around and a time-consuming negotiating process that turns a lot of people off.
- Canada’s big banks have fairly specific rules about who they can extend a mortgage to. There isn’t as much flexibility as with a broker.
Finding the Right Mortgage Option for You
Because of how comfortable I am in the online world I lean heavily towards the online mortgage broker model. You just can’t beat their combination of extremely low operating costs, dozens of options to choose from, and the ability to browse without being hassled or scared into something that isn’t in your best interest. To my way of thinking, the rates posted on online mortgage comparison sites (such as the one below) have to be their best offer because they know consumers will be directly comparing it to everything else on the market – thus cutting out the tedious rounds of negotiating.
If a face-to-face relationship with an institution that you are familiar with is very important to you, I can see the appeal of sticking with one of Canada’s big banks. If this is more your style, at least check out what the online mortgage folks are offering so that you know what numbers to start negotiating with.
And for goodness’ sake, don’t pull a “typical Canadian” and politely head down to your big bank at the end of every mortgage term and sign on the dotted line for the first mortgage rate they mailed to you. Unfortunately, most Canadians are hesitant to engage in the aggressive tug-of-war that is needed to get themselves the best deal. Banks love it when folks simply walk in, say they need to renew their mortgage – or that they are ready for the house of their dreams – and then sign on thinking that a few percentage points one way or the other can’t matter that much.
For most of us, our mortgage will be the biggest financial decision we ever make. Understanding how to save yourself a percentage point here or there can mean an extra trip with your family, a maxed-out RESP, or speeding up that retirement date by a couple of years.