Bank vs. Mortgage Broker
In the past, prospective home buyers turned exclusively to their banks for their mortgage needs. Today, you have more options at your disposal with the growing presence of mortgage brokers. Here's what you need to know about mortgage brokers and banks.
Mortgage brokers vs. banks: What's the difference?
The difference between banks and mortgage brokers is that banks can only offer their own products, while mortgage brokers can present multiple mortgage options. Independent mortgage brokers are licensed mortgage specialists who have access to multiple lenders and mortgage rates. They essentially negotiate the lowest rate for you, and because they acquire high quantities of mortgage products, mortgage brokers can pass volume discounts directly on to you. Banks, on the other hand, can only offer their own mortgage products.
|Description||Chartered banking institution with personal banking, credit card, loan and mortgage services.||Licensed mortgage specialist with access to multiple lenders and mortgage rates. An intermediary whose commission is paid by the lender providing the mortgage product.|
|Puts application together||Yes||Yes|
|Examples||TD, RBC, BMO, CIBC, Scotia, Tangerine||CanWise Financial, Dominion Lending, Safebridge Financial, The Mortgage Centre|
|Pros||Banks allow you to consolidate your services with a provider you have an ongoing relationship with and have deemed trustworthy.||Mortgage brokers essentially 'shop' around, negotiate for you, and present the lowest rate on the market. Volume discounts achieved by mortgage brokers are passed directly to you.|
|Cons||Banks can only access and offer you their own rates and products. Banks will regularly give discounts on their posted mortgage rates; however, you are responsible for this negotiation.||Mortgage brokers are a less familiar avenue, and first time home buyers would not have pre-existing relationships with them.|
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Popularity of banks versus mortgage brokers
According to a 2019 CMHC survey, mortgage brokers represented 47% of total mortgage originations in 2019, up from 40% in 2009 and 26% in 2003. This is after shopping around, as most buyers contacted up to 3 lenders and 2 mortgage brokers for information or advice.2
So, the increased number of quotes acquired reflects prospective home buyers' inclination to compare rates, a role essentially taken on by a mortgage broker.
Comparing banks versus mortgage brokers
In addition to the points in the comparison chart above, there are other factors to consider when deciding between a bank and mortgage broker. Banks, for instance, can offer some discounting for consolidating your services with them. The value of this will vary from person to person.
Another key benefit of using a mortgage brokers is that they have access to, and knowledge of, the entire mortgage market. They can advise which lenders will consider your case and which will not based on your individual circumstances. This is particularly useful for people with poor credit ratings. Mortgage brokers have access to lenders who specialize in servicing people with adverse credit, and can leverage relationships with mainstream banks.
Mortgage brokers can also access exclusive deals not available on the open market, or negotiate a better interest rate or lower application fees from the lender in some cases.
In addition to banks, other financial institutions such as trust companies and credit unions also service mortgages. You can access these rates directly or through a mortgage broker.
How mortgage brokers finance mortgages
Mortgage brokers will assist you in the application process, from pre-approval to home appraisal; however, it is important to note they are an origination service. A financial institution, not a mortgage broker, will provide and service your loan. The bank or lender will collect payments and provide customer service after the closing; however, you can also reach out to your mortgage broker to help you throughout the life of your mortgage.
Many of the major Canadian banks sell through mortgage brokers, including TD Bank, Scotiabank, CIBC and ING. In a recent survey conducted on our website, we asked our participating mortgage brokers which three lenders they work with the most. The most popular lenders were as follows:
- 1. TD Bank
- 2. Scotia Bank
- 3. Home Trust
- 4. MCAP
- 5. Tangerine
- 6. CIBC Firstline
- 7. Merix Financial
- 8. Macquarie
References and Notes
- Canadian Association of Accredited Mortgage Professionals, CAAMP
- Canada Mortgage and Housing Corporation (CMHC) 2019 Consumer Survey