When shopping for a home in Canada, one of the main decisions you will be making is whether you will apply for a loan through a mortgage broker or bank. Many people are choosing mortgage brokers today, and we have put together this guide to explain why and to help you determine whether a broker is the right choice for you. Read this guide for more information on mortgage brokers, and visit our mortgage broker rates page on this site to apply for a loan with a broker.
As far as mortgage brokers and banks, the main difference between them is their access to mortgage products. A bank or other individual lender can only help you secure a mortgage offered by the said bank or lender. The lending institution may have many different mortgage products, but at the end of the day, it will be unable to offer you any mortgage products beyond the ones it has created for its own customers. Mortgage brokers, on the other hand, have access to loans and other mortgage products from all of the major lenders in Canada. In other words, brokers have far more mortgage options that you will be able to obtain through any individual lender.
For example, if you choose a bank such as the Royal Bank of Canada (RBC), the loan officers you deal with will advise you on all of the different RBC mortgage products. However, they cannot do more than that. A mortgage broker such as Dominion Lending Centres and Safebridge Financial, on the other hand, can work with you and a variety of lenders to select the best mortgage product for your needs whether it is from RBC, the Bank of Montreal, Scotiabank or any of the other banks in Canada. You are not limited to any one bank but will find the best mortgage products on the market at the lowest price.
So, when it comes to the question of mortgage brokers vs. banks, the advantages of mortgage brokers include:
• unlimited mortgage selection
• knowledge of the mortgage industry, including lending trends at all the major banks
• lower fees because the lender pays the broker
• a greater dedication to your satisfaction because they are not limited to pushing the products of but one bank
• the convenience of filling out one application instead of the many that have to be completed when you apply at several different banks
Potential disadvantages of mortgage brokers vs. banks include:
• being presented with a dizzying amount of mortgage options
• inability to get you the same low rate at the bank where you have an existing account*
• potentially higher closing costs when you choose a broker
*Many banks give discount mortgage rates to their existing checking or savings account customers. Mortgage brokers may pass over a mortgage from your existing bank that might be the best and lowest cost mortgage for you if they do not know you are a customer of that bank because brokers will consider only the normal bank rate, which may be more expensive than a competitor’s offer. Let your broker know where you have your current bank accounts so that he or she can consider special customer interest rates from a lender with whom you have an existing relationship and not the normal interest rates offered to new customers.
Most Canadians should at least seriously consider choosing a mortgage broker over a bank. In addition to the advantages listed above, mortgage brokers also:
• Get You Unadvertised Rates — Some lenders have lower interest rates on mortgages available through brokers that they do not advertise to the public. If such rates exist, the broker will get you a better deal than you could by contacting the bank yourself.
• Shop Your Mortgage Around — Mortgage brokers get the lowest most current mortgage rates because they shop your loan around. Practically speaking, they force banks to compete with one another for your business, and that drives down prices.
• Maintain Your Credit Score — Every time a credit report is pulled on you, your credit score will decrease slightly. The more often a report is pulled, the lower your score will move and the longer it will take for your score to recover. If you apply to many different banks on your own, your credit score will be pulled multiple times. When you use a broker, your score will be pulled once, helping to maintain your credit.
• Keep You Educated — A mortgage broker will work with you throughout the process and keep you informed as to what your options are and why certain mortgage documents are required of you. Banks may not go into such detail when working with clients directly.
As you would expect, there are some significant differences in the mortgage process depending on whether you go with a broker or directly with a lender. The whole process starts with your mortgage application. If you are working with a broker, you will fill out one application. If you work directly with several banks, you will fill out as many applications as the number of banks you consult.
During the application process with a broker, the broker will help you assemble your application. The same is true when you apply through your bank. Ultimately, however, your relationship with your broker will be temporary. This is because the bank will service your loan. After the application process and approval, your broker will pass you on to the bank, which will work with you for the duration of your loan or until you refinance. When you apply for a mortgage directly from a bank, you will work with the bank well past the application and approval process because the same bank to which you applied for your loan is the same bank that will service your loan.
Although the use of brokers has increased in recent years, most Canadians continue to apply for their mortgages directly from a bank or lender. We will conclude this guide with some interesting statistics to consider as you weigh the pros and cons of mortgage brokers.
The Canada Mortgage and Housing Corporation (CMHC) reported in a 2012 survey that:
• 27 percent of all mortgage originations were handled through mortgage brokers, an increase of 4 percentage points from 2011.
• 48 percent of first-time home buyers in Canada used a mortgage broker in 2012, which represents no increase from 2011. However, first-time home buyer use of brokers has increased 18 percentage points from 2006, when only 30 percent of first-time buyers used a broker.
• 88 percent of mortgage renewals occur directly with existing lenders.
The potential for great savings seems to be driving the increase in the use of mortgage brokers. Familiarity and good customer service, no doubt, are the major factors why existing mortgage holders are renewing their loans with the same lender.