If you’ve decided to buy a home, you may have saved a good chunk for a down payment. But for the remainder, you’ll have to get a mortgage. The question then becomes, where should you shop for the loan?
Historically, most Canadians simply went to a bank if they needed a mortgage. But increasingly, mortgage brokers are used by individuals to get the loan they need to buy a home. According to Mortgage Professionals Canada, 43% of borrowers used a broker in 2016.
The differences between banks and brokers
There are some important differences to be aware of when it comes to banks and mortgage brokers. Banks provide mortgages, chequing accounts, savings accounts, GICs, lines of credit, personal loans, and credit cards.
Mortgage brokers operate differently. For one thing, they don’t offer the kinds of deposit-taking services that banks do. And they’re not in the business of extending personal lines of credit. What they do, however, is act as an intermediary for Canadians seeking mortgages. In other words, brokers connect individuals with lenders.
There are essentially two reasons that brokers can offer competitive mortgage rates: The number of lenders (including many of the big banks) they deal with, and the volume of mortgages they originate. Mortgage origination just means the broker is finding the borrower for the bank. By dealing with many lenders, brokers can shop around and get the best mortgage rates. And brokers who provide high volumes of mortgage originations can understandably get better rates because of the large business they bring to lenders.
The mortgage approval process
You may be wondering just how applying for a mortgage through a broker differs from going to the bank. In many respects, the application process is actually very similar.
What’s important to note, however, is that even if you use a mortgage broker, the ultimate contract you sign will still be with a bank. That’s who you’ll make payments to throughout the course of the mortgage.
Pros and cons
There are advantages and disadvantages to going either the bank or broker route when shopping for a mortgage.
With banks, there are two advantages. First, you may already have loans or deposits/investments with a particular lender. In this case, it may be able to offer you a good rate because of the business you have with it. Another possibility is that if you already have a personal line of credit or a loan with the bank, getting a mortgage will allow you to consolidate all your loans with that particular bank. That is to say, by having all your loans through one financial institution, you could get a better rate.
Of course, there are some disadvantages to getting your mortgage directly from a bank. For starters, just going to a bank for mortgage may result in you not getting the best mortgage rate available. The bank’s rate may not be the most attractive one on the market. In addition, a particular bank may not offer the mortgage product that’s best for your situation.
The major advantage of using a mortgage broker is that they shop around for you. Rather than having to go to multiple banks and negotiate with them, a broker takes care of the legwork. As mentioned earlier, brokers deal with many banks, and also often deal in large volumes. In doing so, they can find the best rates for individuals (and in some cases, they can get special mortgage deals not widely available). Brokers also don’t charge you for their services.
One disadvantage of dealing with a mortgage broker is that the name of the broker may not be as familiar as a major bank. However, the broker will still deal with a number of large lenders, including many large banks.
Check rate comparison sites
Before deciding whether to go with with either a bank or a mortgage broker, don’t forget to check out rate comparison websites. These sites, such as RateHub.ca, aggregate the top rates from both banks and brokers for consumers.
RateHub.ca is a website that compares mortgage rates, credit cards, high-interest savings accounts, chequing accounts, and insurance with the goal to empower Canadians to search smarter and save money.
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