Mortgage Brokers vs Banks – Which is Best?

Buying a home is the biggest single purchase most people will ever make. You should choose carefully when deciding who will help you finance that purchase.

Your simplest option is to work with a mortgage specialist at your bank. This may be your best choice, however, you should also consider the mortgage broker alternative.

Let’s have a closer look at the pros and cons of using a mortgage broker vs a bank to finance your home purchase.

What is a mortgage broker?

A mortgage broker is an intermediary between you and a mortgage lender. His or her job is to search for lenders who best fit your needs and will offer you the best interest rate and terms. Experienced mortgage brokers have a wide network of lenders to choose from, including but not limited to banks.

Why should you work with a mortgage broker?

• One-stop shopping   You don’t need to make the rounds to several lenders; your broker will do that for you. This makes it easy to compare lenders.
• It’s free   Your mortgage broker will be paid by the lender, not by you.
• Expertise   Mortgage brokers are specialists and understand what different lenders can offer. They live and breathe mortgages.
• Better rates  Very often a broker can get a lower interest rate than your bank offers.
• Flexibility  If you are self-employed or have credit issues, a broker can source multiple options.
• Licensed  Mortgage brokers are licensed under the Financial Services Commission of Ontario. You can visit their website here to learn more about the mortgage broker industry.
• On your side  Your broker is legally obligated to work in your best interest.

What are the cons of working with a mortgage broker?

• Due Diligence  Choosing a broker online doesn’t automatically guarantee good results. You need to shop around and/or seek referrals to find the best broker for your situation.
• No access to some lenders  Not all lenders work with mortgage brokers.

Why you might want to work with your bank

• Convenience  Your bank already has your accounts and personal information. It’s comfortable dealing with people who already know you and your family.
• Leverage  If you have all your accounts at your bank, you may be able to negotiate better mortgage terms or other ‘perks’.

Why your bank may not be the best choice

• Limited choice  Your bank can only sell you its own mortgage products. Often the rate and terms offered are not the best options available. You can shop around to several banks, but that means lots of legwork and multiple credit checks (which may damage your credit rating).
• Stringent requirements  Banks are tough on mortgage approvals. If you have a lot of debt, or if you have credit issues, or if you are self-employed, you may have better luck finding a lender through a mortgage broker.

In 2017, CMHC conducted a Mortgage Consumer Survey and found that mortgage brokers are increasing their share of the market:

• First-time buyers – 55%
• Repeat buyers – 40%
• Mortgage refinancing – 40%
• Mortgage renewals – 35%

If you are looking for help to finance a mortgage, explore both the mortgage broker and bank options carefully and make the choice that’s best for you!