This piece was originally published on February 21, 2021, and was updated on June 27, 2022.
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 once the standard process, but today it might be a mistake. In Canada, mortgage brokers are becoming more popular than ever, and are often 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 using a mortgage broker in Canada.
What is a mortgage broker?
A mortgage broker is a one-stop shop for mortgages. 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 just 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 same big bank.
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. If you’re having trouble getting approved for a mortgage by yourself, a good mortgage broker can sometimes leverage their relationships with lenders to get you an approval.
Want a better mortgage rate?
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
- 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.
- Free: You won’t pay a dime to your mortgage broker when you use their services. Instead, they are compensated by the lender.
- 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.
- 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.
- Expert advice: Mortgage brokers are experts at what they do and are accustomed to working with borrowers who may have unique needs, such as freelancers or those with poor credit ratings.
- Independent: Since brokers are independent and don’t work for individual lenders, they can offer impartial 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
- 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.
- 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.
- 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.
Katat, a past commenter on this article, said this about their experience:
“Not really “cons” in using a broker…Comparing the rates, brokers have always found a better discounted rate for my mortgages. If a main bank is chosen from the best options the broker offers, you can also get access to special offers the bank offers (eg waived fees in credit cards, special rates on unsecured credit lines).”
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. In the best-case scenario, you’ll save thousands of dollars in interest on your mortgage. The worst-case scenario is that you receive free, unbiased advice that is personalized for your financial situation.
The other thing to remember is that mortgage brokers aren’t a zero sum game. There’s nothing stopping you from speaking to a mortgage broker and one or more mortgage providers. Because every mortgage broker has relationships with different mortgage providers, it can sometimes be worth speaking to multiple mortgage brokers as well. The more offers you get, the more choice you have.
Want a better mortgage rate?
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. 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 it has essential information like your employment history on file. You may also be eligible for discounts by holding several products with it.
That said, it’s unlikely that the financial institution you’re currently with will offer the best mortgage rates available. This goes doubly for when you’re renewing your mortgage. Your current mortgage provider will send you a renewal slip automatically. This is a quick and easy route to renewing your mortgage, but that rate will almost always be much higher than what you’re able to be approved for.
2. Approaching a new lender directly
If you have a financial institution that you’d like to work with, you can contact it directly. This could be a good option if a mortgage provider has an advertised offer that especially suits you. The trouble with this is it’s still likely that you could receive a lower rate elsewhere, particularly through a mortgage broker. After all, advertised mortgage products have to pay for the cost of advertising.
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 as in the first two alternatives. However, it’s worth noting that 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.