Choosing a mortgage provider
There are several options to consider when choosing a mortgage provider: you can obtain your mortgage from a bank, which was the traditional method for many years, or you can work with an independent mortgage broker. A small number of Canadians also obtain their mortgages through credit unions and trust companies.
Mortgage brokers are licensed specialists who have access to multiple lenders and mortgage rates, including some of the big 5 banks. A mortgage broker doesn’t issue your mortgage loan; instead, they act as an intermediary between you and the lender. A broker shops around for the best product and terms on your behalf, and uses their expertise to negotiate the lowest mortgage rate for you. Based on the large number of clients and deals they bring to a lender, brokers receive volume discounts, which they can pass on to you in the form of that lower rate.
Differences between banks and mortgage brokers
Here is a table showing the differences between getting a mortgage from a bank vs. using a mortgage broker:
|Description||Chartered banking institution with personal banking, credit card, loan and mortgage services.||Licensed specialist with access to multiple lenders and mortgage rates. An intermediary whose commission is paid by the lender providing the mortgage product.|
|How they are compensated||There is no fee to work with a bank, they are compensated by the interest on the loan.||There is no fee to work with a broker2, they are compensated by the lender.|
|Examples||Bank of Montreal, CIBC, Royal Bank of Canada, Scotiabank, TD Bank||True North Mortgage, Safebridge Financial, Dominion Lending Centre|
|Pros||Banks allow you to consolidate your services with one provider you already work with and have deemed trustworthy.||Mortgage brokers shop around for the best rate and product to match your current financial situation. Brokers also pass on volume discounts to you.|
|Cons||Banks can only offer their own rates and products. Banks will give discounts on their posted rates, but you are responsible for negotiating.||Mortgage brokers are not familiar with you at first; first-time homebuyers would not have a pre-existing relationship with them.|
Check out your best current mortgage rates
Banks and mortgage brokers are different in a number of ways. For starters, mortgage brokers don’t lend you money. Instead, they work for you to find the best mortgage rate and product from a lender, based on your financial situation. When you are finished working with a mortgage broker, you’ll make your monthly payments to the lender you chose. Banks, on the other hand, issue the mortgage directly and receive your monthly mortgage payments.
Choosing to obtain a mortgage with your existing bank gives you the benefit of consolidating your financial services with one institution. If you negotiate, you may even be able to get a discount from the bank’s posted rate. Using a mortgage broker, on the other hand, will ensure you get the lowest rate available in the marketplace, but it may be with a lender you haven’t worked with before.
One key benefit of using a mortgage broker is their knowledge of the entire mortgage market. Whereas a bank can only offer their own products and rates, a mortgage broker can advise you on which lenders are most likely to offer the best interest rate and mortgage product based on your individual circumstances; this is especially useful if you have bad credit.
When you go through a bank to get your mortgage, you’ll continue your relationship with them once the home has been purchased. You’ll make your monthly mortgage payments to that bank, and they’ll provide customer service after closing.
Mortgage brokers, on the other hand, are an origination service. They walk you through the mortgage process, from the initial application to the home appraisal. Brokers help you find the best lender and mortgage rate, and once the house closes, the lender you’ve chosen to work will receive your mortgage payments and provide you with customer service.
Popularity of banks vs. mortgage brokers
According to the Canadian Association of Accredited Mortgage Professionals (CAAMP), more Canadians are choosing a mortgage broker when shopping for a mortgage. In 2013, 40% of first-time homebuyers worked with a mortgage broker; this is a significant increase over recent years.
References and Notes
- CAAMP Fall Consumer Report 2013
- For homebuyers with bad credit, some mortgage brokers will charge a fee.