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While skyrocketing property values make the goal of homeownership seem ever more unattainable for a growing number of Canadians, buying a house remains one of those life milestones many of us still long to achieve. When you set out to make that dream a reality, one of the first questions you’ll need to consider is whether it’s better to use a mortgage broker or bank? We break it down to help you choose.
Mortgage Broker or Bank: That Is the Question
What are some of the key differences between a mortgage broker and bank? Take a look below:
|Considerations||Traditional Bank||Mortgage Broker|
|Mortgage Provider?||Yes.||No. Finds the most competitive rates but does not provide mortgages.|
|Competitive Rates?||Not always. Motivated to sell you their mortgage product only||Yes. Mortgage brokers only get paid if they secure you a loan so it’s in their interest to get clients the best rates possible|
|Access to lower rates from credit unions and online banks|
Why Use a Mortgage Broker
A few decades ago, it was typical for potential homeowners to go to their local neighbourhood bank to secure a mortgage. There weren’t a lot of other mortgage options and people generally felt more comfortable dealing with a bank or bank representative they were familiar with. But with rising bank fees and dwindling customer service, many people became disillusioned with the big banks and were willing to look for more competitive options. That’s where a mortgage broker comes in.
A mortgage broker is a licensed professional who works with a diverse pool of lenders to find you the best mortgage rate. They get to know your housing needs, credit history, whether you want a variable or fixed or open or closed mortgage, and then do all the legwork and negotiating to get the most advantageous mortgage.
Unlike a bank that wants to sell you their specific product, mortgage specialists have access to a large network of potential lenders, including banks, online mortgage lenders, trust companies, credit unions, and more. This wide spectrum of financial contacts is especially useful for people with poor credit trying to get a mortgage. Mortgage brokers are familiar with special programs and lenders who specialize in offering mortgages to those with lacklustre credit histories and they can often secure mortgages for people that traditional banks would refuse.
There is no fee on your part to use a mortgage broker. Rather, the broker receives a referral fee/commission from the lender who provides you with the mortgage product. A broker’s payment is totally dependent on securing you a mortgage, so you know they’re going to work very hard to make you happy and to get you to sign on the dotted line.
If you don’t need a lot of hand-holding, are comfortable with mortgage rules, and are well qualified, you could streamline the mortgage process and get excellent discount rates by using an online mortgage lender. Online lenders are secure and competitive and are also a wonderful way to research your potential options.
Pros and Cons Of Using A Mortgage Broker
|More lender options than a bank – so it’s your best chance of getting the lowest rate||May not have a personal/long-term relationship with a broker|
|Good option for clients that traditional banks might refuse (i.e. bad credit)||Broker may not understand your overall financial situation|
|Their goal is to find you the best rate rather than sell you a specific mortgage product||Can’t offer you other products like HELOCs|
Why Use A Bank
While using a mortgage broker has many benefits, there are perks to using a bank to get your mortgage. Going to a bank for a mortgage can create an extra level of comfort and security if you’ve been with the financial institution for many years. You may even have a personal, long-term relationship with one of the bank’s financial representatives – which could help you get the lowest mortgage interest rate possible.
Although banks don’t have the same incentive to get you the lowest, most favourable rates like a mortgage broker does, if they are your regular financial service provider, they have a better overall picture of your entire financial health and goals. Because banks are anxious to provide mortgages (because it helps secure a long-term and profitable relationship), they will often entice clients with perks like paying the home’s appraisal fee, giving you a cashback bonus, and making it easier for you to get a home equity line of credit. Finally, it can be nice to have all your financial services overseen by one institution.
If a bank appeals to you more than a broker, it's also worth considering alternatives like an online bank or credit union. For instance, credit unions are a solid option: they offer a variety of financial products and services similar to traditional banks, but often have better rates. As one of the best credit unions in Canada, Meridian currently offers a 5-year closed fixed mortgage at 2.59%, and 5-year closed variable mortgage at 2.90% — some of the lowest rates in Canada. For one of the best online banks, motusbank has mortgage interest rates as low as 2.49%.
Pros and Cons of Using a Traditional Bank
|May have a pre-existing personal relationship with a bank||Motivated to sell clients a specific mortgage product rather than get them the best rate|
|Some people like having a brick-and-mortar building to go to whenever they have questions about their mortgage||Rates are not as competitive as alternative banks that a broker may have access to|
|As your regular financial service provider, they may take more time to explain the fine details of a mortgage, like how to port a mortgage, penalty clauses, limits on lump sum payments and more||Often refuse people with rocky financial history|
|A bank can offer you a variety of financial services like HELOCs|
Last Word: How To Choose
There is no clear-cut answer as to whether a mortgage broker or bank is best for you. Despite the pros and cons listed above, it really comes down to choosing the option that makes you the most comfortable and suits your financial circumstances. Buying a house is one of the biggest purchases you’ll ever make, so be sure that whatever method you choose to procure a mortgage is one you trust and can live with in the long term.
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