Whether you’re after a mortgage for a home you’re about to buy or renewing the mortgage for a property you already own, you’ll always want to get the best mortgage rate you can. Even a 0.1% difference can save you thousands of dollars over time, so getting the best rate possible is crucial.
In the past, the most common way to get a mortgage was through your bank. However, using a mortgage broker has become increasingly more convenient and popular. A survey by the Canadian Mortgage and Housing Corporation (CMHC) found brokers were used for 47% of all mortgages in 2019, up from 26% in 2003.
So what’s the difference between mortgage brokers and banks, and which is best for you to get a mortgage through? We’ve broken down the pros and cons of each to make it easier for you to decide.
What is a mortgage broker?
Unlike your bank’s mortgage specialist, who can only offer you the products of that bank, brokers have access to a variety of mortgage products from different lenders such as credit unions, trust companies, small banks, and yes, even the Big Six banks. In order to provide you with great mortgage options, many brokerages negotiate with lenders on your behalf, and some are able to get volume discounts that they pass on to you. This is why mortgage brokers regularly offer lower rates than those offered by the Big Six banks.
It’s a mortgage broker’s job to understand your needs and financial situation, provide you with options, and help you decide which mortgage is right for you. Similar to your bank’s mortgage specialist, you won’t be charged any fees for using a broker, as their commission is paid for by the lenders.
Mortgage broker option
Using a mortgage broker is a popular alternative to going directly to a bank. It’s a slightly different experience though, with both upsides and downsides.
Pros:
- Partnerships with multiple lenders: Brokers can access rates from a wide network of big banks, small banks, credit unions, and trust companies. They also work with smaller lenders who don’t have the same overhead costs as the Big Six banks. This means you’re more likely to have access to the best mortgage rates in Canada.
- Better rates: Brokers can negotiate better rates and terms on your behalf because of the special partnerships they have with different lenders. They can also get volume discounts and deals that they pass on to you.
- One-stop shop: Instead of having to apply several times to get quotes from different lenders, brokers allow you to apply once to get multiple quotes.
- Independent advice: Because brokers don’t work for a single lender, their knowledge of different products and offers in the mortgage market is more all-encompassing. They can offer insightful advice on which mortgage products best suit your situation. Brokers can also tell you which lenders are most likely to approve your application, and can let you know how much of a mortgage you can afford.
- You don’t pay the broker’s commission: Most brokers don’t charge a fee to you, the borrower. Instead, the broker’s commission is paid by the lender.
Cons:
- No pre-existing relationship: Using a broker may mean working with an unfamiliar company, and some people can feel more comfortable working with one of the Big Six banks. However, most brokers can still get you a mortgage with one of the big banks. Considering the potential savings, it may be worth giving brokers a try.
- Not all lenders work with brokers: Though brokers have a multitude of partners, some financial institutions don’t work with brokers at all. If you have your heart set on a mortgage from one of those institutions, a broker may not be able to help you.
Going with a big bank
Despite the bargaining power of a broker, there are reasons to apply to a bank directly. There are also, of course, some drawbacks.
Pros:
- Faster approval: Your current financial institution already has the information on your account balances, credit history, and investments. This may reduce the documentation you need to provide and make the approval process faster.
- Existing relationships: If you’ve banked with the same institution for years, you may feel more comfortable with them. Some banks also offer special rates to customers or provide bundles that waive annual fees on other products, such as credit cards or insurance.
- Consolidation: Managing your finances is easier with everything in one place. Using an existing lender means less apps, passwords, and monthly statements to keep track of.
Cons:
- Limited products: Banks can only offer you their own products. That means you could miss out on a better rate that a different lender is offering or a mortgage with options that better suit your situation.
- Higher rates: Unless you negotiate hard, banks generally don’t offer direct customers their lowest rates outright. As such, going direct may cost you more, in the form of a higher rate.
- Shopping around: Of course, you can approach different banks yourself to find one with great rates. However, this can be a long and tiresome process, and you may need to make multiple applications.
The bottom line
If you’re deciding between using a bank or a broker, the best thing to do is to try both. Having many options is a good problem to have. We recommend asking your bank what they’ll offer you, then getting quotes from one or more brokers, as well. If you get a better offer from a broker, you can go to your bank and see if they’ll match it.
In its 2019 survey, the CMHC found most buyers spoke to up to three lenders and two brokers before choosing a provider, so it’s common to compare options for what’s available. Yes, shopping around for mortgages can take time, but buying a home is one of the largest purchases you’ll make, so it’s time well spent!
At Ratehub.ca we make it easier for Canadians to choose better personal finance. With the best tools, rates and knowledge to help you take control of your money. Whether it’s a mortgage rate or insurance rate, a credit card, chequing account or high-interest savings account, we are your champions of choice.