Pros and cons of using a mortgage broker

Ratehub.ca
by Ratehub.ca April 13, 2020 / 3 Comments

When you picture yourself getting a mortgage, you probably imagine heading to your local bank branch to sit down with a mortgage expert to discuss your options. This was the traditional process, but today it might be a mistake. In Canada, mortgage brokers are becoming more popular than ever, and might be a better choice if you’re looking for the lowest possible mortgage rate.

Of course, whether you’re buying your first home or you’re a seasoned property owner, the importance of securing the lowest possible mortgage rate can’t be overstated. Even a 0.1% decrease in your mortgage rate can save you thousands of dollars in interest charges over the life of your mortgage, which gives you more buying power today. So if mortgage brokers can get you a better rate, you should seriously consider them.

But are mortgage brokers better? Keep reading to find out everything you need to know about the using a mortgage broker in Canada.

What is a mortgage broker?

Unlike your local bank branch, which can only offer you a mortgage (and mortgage rate) from their suite of products, mortgage brokers have access to many different lenders. When you make an appointment with a mortgage broker, it’s like you’re making an appointment with the major banks, credit unions, and trust companies, except you only need to meet with one person. A mortgage broker has access to products from multiple lenders of different shapes and sizes, which means you have access to these products as well.

If you’d prefer the security of getting a mortgage from a big bank, a mortgage broker can still set you up with one. In fact, good mortgage brokers will receive volume discounts from major lenders. That helps them secure a mortgage rate for you that is lower than you’d be able to negotiate yourself, even from the big banks.

If your financial situation is a little unique, don’t worry. A mortgage broker’s job is to match you with the best lender for your financial situation. So even if you[‘re a full-time freelancer, or you’ve had credit issues in the past, a mortgage broker can still work with you.

Want a better mortgage rate?

Compare the best mortgage rates available

Pros and cons of using a mortgage broker in Canada

So, should you use a mortgage broker in Canda? While we think that working with a broker is generally a good option for most Canadians, we’ve broken out the advantages and disadvantages of mortgage brokers, so you can answer the question for yourself.

Mortgage Broker Pros Mortgage Broker Cons
Easy to use: Brokers are a one-stop shop. Lack of familiarity: You’ll need to deal with a new person during your application.
Free: Brokers are paid by lenders, not by you. No access to some lenders: Not all lenders work with brokers.
Better rates: Brokers have access to more, and lower rates . More documents may be needed.
Access to more lenders: Brokers make it easier to compare multiple lenders.
Expert advice: They live and breathe mortgages, and can help you navigate.
Independent: Good brokers want you to get the best rate possible, regardless of your final lender.

 

Let’s go into some more detail on the pros for using a mortgage broker in Canada:

Pros of using a mortgage broker

  1. Easy: Meeting with a mortgage broker has never been easier. Usually, you’ll need one meeting, and it can be in person or over the phone, whichever is best for you. Any documentation that is required can usually be sent through email, further streamlining the process.
  2. Free: You won’t pay a dime to your mortgage broker when you use their services. Instead, they are compensated by the lender.
  3. Better rates: Most mortgage brokers receive volume discounts from their top lenders, which means you’ll have access to lower mortgage rates than you could secure if you try to negotiate yourself.
  4. Access to more lenders: When you apply for a mortgage at a bank or credit union, you only have access to the products they offer in house. With a mortgage broker, you’ll have access to dozens of lenders.
  5. Expert advice: Mortgage brokers are the experts at what they do and are accustomed to working with borrowers who may have unique needs, including freelancers or those with poor credit ratings.
  6. Independent: Since brokers are independent and don’t work for individual lenders, they can offer advice on a broad range of lenders. They can also advise you on which mortgage products are best for you, and tell you how much mortgage you can afford.

Cons of using a mortgage broker

  1. Lack of familiarity: If you’ve never used a mortgage broker before, you’ll need to establish a relationship with a new one. It may take a few tries before you find a good fit.
  2. No access to some lenders: Not all lenders work with mortgage brokers, so if you have a particular financial institution in mind, double-check that your mortgage broker can work with them before proceeding.
  3. More documents may be needed: Since you don’t have an existing relationship with this mortgage broker, you may be required to provide extra documentation – like proof of income – when completing your application.

Should you use a broker?

Working with a mortgage broker has almost no downside, because you aren’t obligated to move forward with your mortgage application until after you find out what mortgage rate you can secure and from which lender. Best case scenario, you save thousands in interest charges on your mortgage, worst-case scenario, you receive free, unbiased advice that is personalized for your financial situation.

Want a better mortgage rate?

Compare the best mortgage rates available

Alternatives to mortgage brokers

Mortgage brokers are an excellent option for most homebuyers, but there are other choices available too. Here are three alternatives to a mortgage broker.

1. Sticking with your current financial institution

Getting a mortgage from your existing financial institution is the easiest route to a mortgage. All your accounts are already there, and they already have essential information like your employment history. That said, it’s unlikely that the financial institution you’re with also happens to offer the lowest mortgage rate available.

2. Approaching a new lender directly

If you have a financial institution that you’d like to work with, you can contact them directly. Still, it’s unlikely you’ll receive a lower rate than your mortgage broker could obtain because mortgage brokers receive volume discounting.

3. Going directly to a credit union

If you’d like to borrow from a credit union, you could approach them directly, and the same caveats apply. That said, some credit unions don’t work with mortgage brokers, so contacting them yourself may be the only way to obtain a mortgage from this type of lender.

The bottom line

So, should you get a mortgage with your local bank or a mortgage broker? We think that you shouldn’t have to choose. We recommend you get a quote from both your existing financial institution and at least one mortgage broker. This is only a little extra work, but maximizes your options and gives your the best chance at securing the lowest possible mortgage rate.

Shopping around for mortgages takes a little time, but it’s worth the effort to end up with the best possible product and rate for your financial situation.

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