Banks vs. Mortgage Brokers: Who is the Better Choice?
The traditional mortgage providers in Canada have been large banks. You also have the option of working with an independent mortgage broker. A smaller number of people opt to apply for a mortgage through trust companies and credit unions.
Some of the big 5 banks use mortgage brokers, those licensed specialists with access to multiple mortgage rates and lenders. They act as intermediaries between lenders and homebuyers and are not involved in the actual process of issuing a loan. They use their expertise to negotiate the lowest mortgage rates for their clients and shop around on your behalf for the best terms and loan product available. Brokers receive volume discounts based on a large number of deals and clients they bring to a lender, and they can pass these on to you in the form of lower rates.
Mortgage brokers differ from banks in several ways. A bank will not compare its competitors’ rates to help you find the best deal, but a mortgage broker will do rate comparisons for you. However, you don’t make monthly payments to the mortgage broker, but to the lender, you end up choosing.
If you decide to take a mortgage with your existing bank, you will have the benefit of consolidating your financial services with one institution. You might even be able to negotiate a discount from that bank’s posted rate. On the other hand, if you use a mortgage broker, you’re guaranteed to get the lowest rate available on the market, though it might be with a lender you’ve never used before.
Another key benefit of using mortgage brokers is their familiarity with the entire mortgage market. A broker can advise you on which lenders are most likely to offer you good rates and a mortgage product based on your personal circumstances, which is particularly useful if you have poor credit. A bank can only offer you its own rates and products.
If you opt to get your mortgage via the bank, once the house purchase comes through, you will continue your relationship with that bank. It will continue to provide you with customer service, and you will make your monthly mortgage payments to the bank.
On the other hand, mortgage brokers merely provide an origination service. From the initial application to the home appraisal, all they do is walk you through the mortgage process. Once the deal closes, they consider that they’ve done their part by finding you the best mortgage rate and lender, and the financial institution you’ve chosen will take over with providing mortgage-related services.
Mortgage Brokers Surpassing Banks in Popularity
More Canadians are choosing to work with mortgage brokers, according to the Canadian Association of Accredited Mortgage Professionals. Forty percent of first-time homebuyers worked with a mortgage broker in 2013, a significant increase over recent years.
How do you know you’re talking to a good mortgage broker? According to industry insiders, the brokers that ask you the most questions are the ones that tend to find the best deals for your personal circumstances. So pay attention to how the broker responds to your requests for information, and you, too, may benefit from the best available mortgage rate for your new home.