Bank vs. Broker

Alyssa Furtado
by Alyssa Furtado February 20, 2013 / No Comments

Flickr: dolmansaxlil

Since your home is likely the biggest purchase you will ever make, it only makes sense to shop around for the best mortgage rate and product. In Canada, there are two main options homeowners can choose from to obtain a mortgage: a bank or a mortgage broker. Traditionally, banks accounted for the lion’s share of mortgages, but that’s quickly changing.

According to the Canadian Association of Accredited Mortgage Professionals (CAAMP), banks and brokers are neck and neck – in 2012, 47 per cent of new mortgages were obtained through a bank and 47 per cent from a mortgage broker. Whether you’re shopping for your first mortgage, or renewing your existing mortgage, it’s important to know all of your options. In this post, we’ll break down the pros and cons of working with both traditional banks and mortgage brokers.

Banks

Pros

  • If you’re a longtime customer, your bank may offer you a lower interest rate and other perks, such as a no fee chequing account and a free home appraisal.
  • Banks offer additional services, such as home buying seminars, free information, and advice for paying off your mortgage sooner.
  • It’s more convenient to have all your banking products, including mortgage, RRSPs, chequing account and savings account, with one lender.

Cons

  • The big banks will typically start by offering their posted rate, so it becomes time-consuming to shop around and negotiate rates with various banks.
  • Banks are limited by the mortgage products that they offer, so you won’t necessarily get the best mortgage rate or product by signing with your bank.
  • If you shop around with too many banks who request your credit report, your credit score can drop after being requested multiple times in a short period.

Brokers

Pros

  • Mortgage brokers save you time and money, by shopping the mortgage market for you. A mortgage broker is like a matchmaker – they try to match your financial needs with the lender that offers the best rates and terms.
  • Brokers deal with a wide variety of lenders. This includes traditional lenders like banks and trust companies, as well as other lenders, such as foreign banks and private lenders.
  • Brokers typically have access to the lowest interest rates available. And a mortgage broker only has to request your credit report once, so your credit score is protected.
  • Brokers are helpful in arranging financing, if you have a poor credit score or a high debt service ratio.
  • Last but not least, mortgage brokers typically have more flexible hours to meet up and discuss your mortgage options; this often includes evenings and weekends.

Cons

  • Brokers are typically compensated by lenders, based on the type of mortgage selected. You’ll have to ensure your broker is offering you the best mortgage to meet your financial needs.
  • Similar to insurance brokers, mortgage brokers may only have access to a select pool of lenders. Lucky for you, websites like Ratehub.ca make it easier for you to do a comparison shop!

Whether you end up working with a traditional bank or a mortgage broker, it’s in your best interest to educate yourself on how to negotiate for the best rates and terms; getting the lowest rate available to you will save you thousands in interest over the life of your mortgage.


categories: Mortgages
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