Purchasing a home is likely the largest financial decision you will ever make, so it’s important to consider your options carefully. And just like with any major decision in your life, financial or otherwise, there are many options. Working directly with a bank or going through a mortgage broker are both great options and to help you decide which is better for your unique financial situation, we’re breaking down the pros and the cons of each.
Mortgage Broker vs. Bank
Are you wondering if there are any benefits to working with a mortgage broker over a bank? The answer depends on your financial situation, your willingness to negotiate, and whether you’re okay with handling all the paperwork.
Banks
When working with a bank such as TD, BMO, RBC or any of the other big banks, you’ll have to apply with each bank individually to see how much you’re pre-approved for. If you’re aware of the mortgage application process, applying directly with a bank can be beneficial as you’ll be able to negotiate with them directly. If you have a pre-existing relationship with them, you could also use that to leverage a better deal.
Mortgage Brokers
A mortgage broker is a licensed professional who can secure a mortgage for their clients. They act as an intermediary between you and a potential lender. They will help guide you and ensure that all the paperwork is accurate. This will prevent any unnecessary delays and ensure your lender has everything they need to approve you for a mortgage.
Moreover, when they use A-lenders, their services do not cost you anything because the lender pays them after the mortgage closes.
Mortgage Broker vs. Bank: Who Should You Work With For Your Mortgage?
The choice between a bank vs. a mortgage broker is a personal one. There isn’t a right or wrong choice. The best thing you can do is compare the options, weigh the pros and cons and even get advice from a trusted friend or family member.
Benefits Of Using A Bank For Your Mortgage
At the first mention of a mortgage application, most people think of their primary bank. Canada’s top 5 banks (RBC, TD Bank, Scotiabank, BMO, and CIBC) are well-established and trusted sources for your family’s financial needs, including mortgages. There are many advantages to working with traditional banks:
- Convenience. People tend to feel safe with a bank and people like having all their financial resources in one place.
- Location. Many people appreciate a brick-and-mortar branch located in their neighbourhood.
- Face-to-Face Communication. Being able to chat with a familiar person who knows you and your family, is often a benefit. If you already do your day-to-day banking there, your mortgage specialist will be able to access information that gives them an overview of your entire financial picture.
- Perks for Combining Services. Your mortgage might even come with perks like waived account fees or a free safety deposit box. It’s even possible that you could land an extra, home equity line of credit to help with renovations after you move in.
- A-lenders. Banks are A-lenders. They tend to look for lower-risk borrowers with the best credit scores. A-lenders may provide great rates but also have the strictest policies. For that reason, your bank may not always be able to give you what you are looking for.
Benefits Of Using A Mortgage Broker vs. Bank
If you are self-employed, have a low income, have a high amount of debt, or have a history that includes a recent bankruptcy, a mortgage broker might be a better option for you.
There are a lot of reasons why a mortgage broker may be right for you, including:
Access To More Lenders
Mortgage brokers provide a one-stop shop for their clients. They may have access to hundreds of potential lenders with only one credit inquiry impacting your score. They are often able to find great rates and get you approved quickly.
In fact, mortgage brokers often have access to many A lenders such as TD, Scotiabank and BMO. They also have access to other A lenders who are not considered major banks, but still offer great rates and terms. Similarly, most brokers also have access to a network of B lenders and private lenders who cater to those with less-than-perfect credit or finances.
Negotiation
While banks expect the client to negotiate with them, or accept the given rate, mortgage brokers are more likely to go to bat for you, to get a lower interest rate.
Flexibility
Mortgage brokers are often very flexible with meetings and communication. Many are available after business hours and are willing to deal with meetings and much of the necessary paperwork through text, email, and Skype. If you’re a bit of an introvert, you can even deal with an online mortgage broker, avoiding face-to-face meetings altogether.
Higher Chance Of Getting A Mortgage
If you’re unable to get approved for a mortgage with a traditional bank, a mortgage broker can still help you qualify for one. Mortgage brokers are often able to get their clients approved, even when banks deny them because they work with many different lenders, including credit unions and private lenders.
Mortgage brokers can connect borrowers with poor credit or unique finances with B-lenders and private lenders, who consider the details of each unique case, rather than considering numbers alone. Be careful to read the fine print though. While a deal with a B-lender or a private lender can get you the money you need, it might come with higher interest rates, unexpected fees and/or unfavourable mortgage terms such as penalties for extra payments.
Mortgage Broker vs. Bank – What’s The Difference?
| Bank | Brokers | |
| Type of Lender | Direct lender | Indirect (broker) |
| Best Options | TD, BMO, RBC, CIBC, Scotiabank, and National Bank | Alpine, Mortgage Maestro, Homewise, nesto (keep in mind that a mortgage broker can connect you with a bank) |
| Mortgages Offered | – First-time – Renewal – Refinancing – Second/ HELOC | – First-time – Renewal – Refinancing – Second/ HELOC – Reverse |
| Rates Offered | Banks set their rates based on the BoC benchmark. Then they offer borrowers rates based on their credit and financial profiles. | Brokers work with a wide range of lenders, rates will vary. |
| Pre-Approvals Offered | Yes | Yes |
| Pros | – A lenders – Offers in-person service – May have a pre-existing relationship | – Gain access to multiple lenders – Compare rates and offers – Generally free to use – Accepts various types of borrowers |
| Cons | – Strict approval requirements – Only promotes their own products | – May push lenders who offer them the best incentives – Not all lenders work with all brokers |
What Do You Need To Qualify For A Mortgage?
Whether you choose to use a bank or a mortgage broker, your lender will look at your:
- Income. Your income level as well as your employment stability will be taken into consideration when determining your eligibility.
- Debt load. Both banks and brokers will use your debt load to calculate your TDS and GDS ratios to see how much mortgage you can afford.
- Credit score – While banks put major emphasis on your credit scores, brokers may use your credit to simply better match you with their network of lenders. Before applying, always be sure to check your credit score to see where you stand. You can do so for free using Equifax or a third-party provider like Loans Canada’s Compare Hub.
Mortgage Brokers, Banks, And Stress Tests
The stress test is only mandatory for federally regulated financial institutions. That means while banks must stress test their clients, private mortgage lenders do not. As such, if you’re looking to avoid the stress test, it’s worth working with a mortgage broker who can connect you to a reputable private lender.
However, do note that private lenders generally charge much higher rates than banks. As such, it’s best to opt for a shorter term with a private lender, that is until your credit score and finances are healthy enough to pass the stress test.
Can You Get Pre-Approved For A Mortgage With A Broker?
Like most banks, you can get a pre-approval with a broker. They will compare various mortgage offers for you and get you pre-approved with a lender who best meets your needs.
If you are denied, you can work on improving your situation before searching for a property. A mortgage broker is often willing to help you make a plan to put things in order before applying again.
Questions To Ask Your Mortgage Lender
Choosing your mortgage provider is a personal decision. Whichever option you choose, make sure you understand your mortgage terms before you sign the deal. To help you make sure you’re as prepared as possible, here are some questions to ask:
What about the interest rate?
Is it fixed or variable? Fixed rates mean your monthly payment will always be the same for the period of your term. Variable rates may be lower, but they may fluctuate, up or down, throughout the term.
Can I make a lump-sum payment?
If you find some extra cash “under your mattress”, you might like to pay down your mortgage a little faster. Prepayments may or may not be allowed, depending on the terms of your agreement.
How long until I’m done paying my mortgage?
Typical amortization periods are 25 or 30 years.
When can I renew or renegotiate?
This can range from 6 months to 10 years but 5 years is the most common term.
Are there any other costs involved?
You may incur further expenses before your mortgage can be funded. Some lenders require a home appraisal. Also, lenders typically want to see proof of insurance which may require fireplace/woodstove, plumbing, or electrical expenses.
If you choose a B lender or private mortgage, you may also incur a broker or lender fee.
Types of Mortgages You Can Get With A Bank Or Broker
First-Time Buyers
The most obvious reason for needing to negotiate a mortgage is financing the purchase of a home. If this is your first home, congratulations! Make sure you check out some of the incentives offered to first-time buyers. For example, the First-Time Home Buyers’ Tax Credit or the First Home Savings Account (FHSA).
Repeat Buyers
Perhaps you’ve sold a home and are ready to purchase a new one. You’ve been through the process before and gained a little knowledge along the way. Remember if you are ending your contract early, you may incur penalties. However, this is not always the case, for example, if port your mortgage.
Renewers
Maybe your mortgage term has come to an end. Now it’s time to renew. In this situation, you may stick with the lender who approved your first mortgage, or it may be time to do some shopping. If you’ve waited until your renewal date, you may be able to get a better rate or change the terms without penalty.
Refinancers
Refinance your mortgage loan may increase the funds available to you. This can be a great option if you want to consolidate debt or begin a renovation project in your home. If you want to increase the amount of your current mortgage, you will need a home appraisal to determine the value of your home.
Reverse Mortgages
This option, open to seniors, allows homeowners to pull a portion of equity, in cash, out of their home to use for living expenses, travel, home repairs, or other expenses. A reverse mortgage only needs to be repaid if the house is sold or the owner passes away.
Bottom Line
No matter whether you choose a bank or a mortgage broker, you will be working closely with them and forming a relationship. Ask for references and consider word of mouth from your family, friends, and even your realtor before settling on a specific bank or mortgage broker. Ultimately, there isn’t a right or wrong choice, it all depends on what you’re looking for and how you want to find the right mortgage for your needs.
Mortgage Brokers vs. Banks FAQs
Do mortgage brokers charge a fee in Canada?
What is a mortgage broker?
Can I get a better rate with a mortgage broker vs. a bank?
Note: Loans Canada does not arrange, underwrite or broker mortgages. We are a simple referral service.
