Should You Use a Mortgage Broker or a Bank?

You’ve found the perfect home in Toronto’s West End. The location is ideal, the neighbourhood feels like home, and you can already see yourself settling in. But before you can pick up the keys, there’s one major decision: how will you secure your mortgage? Should you go straight to your bank, or would working with a mortgage broker get you a better deal?

With so many options available, understanding how brokers and banks differ can help you make the right choice. We discuss the pros and cons of each so you can confidently move forward in financing your dream home.

What Does a Mortgage Broker Do?

A mortgage broker acts as a middleman between borrowers and lenders. Instead of lending money directly, brokers work with banks, credit unions, and private lenders to find a mortgage that best fits your needs. They also help with paperwork and can negotiate on your behalf.

Advantages of a Mortgage Broker:

• Access to multiple lenders: Brokers can compare mortgage rates from different banks and alternative lenders, potentially finding better rates than those available to the public.
• Help for unique financial situations: If you’re self-employed, have a lower credit score, or are a newcomer to Canada, brokers may connect you with lenders who offer more flexible approval requirements.
• Guidance throughout the process: Brokers assist with applications, documentation, and closing, making the process smoother.
• Potentially lower rates: Some brokers pass on part of their commission to lower your interest rate, a strategy called a mortgage buydown.
• Wider product range: Brokers have access to mortgage products from a variety of lenders, including big banks, credit unions, and private lenders. This means more choice in loan terms, fixed vs. variable rates, and special mortgage products tailored to unique financial situations.
• Better negotiation power: Brokers negotiate with lenders on your behalf, often securing lower rates and better terms than you might find on your own.

What Does a Bank Do?

Banks provide mortgages directly to borrowers, offering a range of lending products that fit different financial needs. Since they lend their own money, banks set their own mortgage terms, interest rates, and approval criteria.

Advantages of a Bank:

• Established relationships: If you already bank with them, you may receive special discounts or offers.
• Comprehensive financial services: Banks offer mortgages alongside other financial products like HELOCs, investment accounts, and insurance.
• Direct lending process: Banks approve and fund their own mortgages, making the process straightforward.
• Fixed mortgage options: Banks provide consistent mortgage products, which may be beneficial for buyers who prefer stability.
• In-person service: You can visit a branch and speak directly with a mortgage specialist if you prefer face-to-face interactions.

However, banks have stricter approval requirements and only offer their own mortgage products, meaning you won’t be able to compare multiple lenders through a single source.

Key Benefits of Banks and Mortgage Brokers

Both banks and mortgage brokers offer unique advantages depending on your needs:

Banks:

• Long-term relationships: Banks aim to build lasting client relationships, which may lead to personalized service and better financial product bundling.
• Comprehensive services: Many other financial products, such as HELOCs, insurance, credit cards, and loans, are readily available at the same institution.

Mortgage Brokers:

• Comprehensive mortgage advice: Brokers provide tailored recommendations by comparing multiple lenders to find the best solution for your financial situation.
• Lower rates: According to studies, 67% of mortgage broker renewers used a broker again to secure the best rate.
• Time savings: Brokers handle the legwork of shopping for the most suitable mortgage, making the process easier for borrowers.

Pros and Cons: Mortgage Brokers vs. Banks

To help make your decision easier, here’s a quick breakdown of the advantages and disadvantages of both options:

Pros and Cons of Working with Mortgage Brokers

Pros:
✅ Access to multiple lenders and mortgage options
✅ More flexible approval for self-employed individuals or those with lower credit scores
✅ Brokers negotiate rates and terms on your behalf
✅ Potentially lower interest rates through mortgage buydowns
✅ Guidance throughout the entire mortgage process

Cons:
❌ No guarantee that the broker will find the absolute best deal—depends on their lender network
❌ Some brokers may charge fees for private or alternative lending solutions
❌ Less familiar option compared to banks, which some buyers find intimidating

Pros and Cons of Working with Banks

Pros:
✅ Familiar and trusted financial institutions
✅ Can bundle mortgage with other financial products (e.g., HELOCs, savings, and investments)
✅ May offer discounts for existing customers
✅ Convenient if you already bank with them

Cons:
❌ Limited to the bank’s own mortgage products—no rate shopping
❌ Stricter approval process with stress tests and credit requirements
❌ Less flexibility for self-employed borrowers or those with non-traditional income
❌ Mortgage specialists may not negotiate as aggressively as brokers

Factors to Consider for Toronto Homebuyers

When deciding between a mortgage broker and a bank, consider these key factors:

1. Credit Score: If you have a good credit score, banks might offer competitive rates. However, if your credit is less than perfect, a broker might find more suitable options.
2. Financial Situation: Self-employed individuals or those with unusual income sources might benefit from a broker’s ability to find specialized mortgage products.
3. Time and Effort: If you’re comfortable researching and negotiating, going directly to banks might work. If you prefer someone to handle the process for you, a broker could be beneficial.
4. Existing Banking Relationships: Consider leveraging long-standing relationships with your bank for potential benefits.
5. Mortgage Type: If you need a specialized mortgage product, a broker might have more options. For standard mortgages, banks might suffice.
6. Market Knowledge: Toronto’s competitive real estate market might benefit from a broker’s up-to-date knowledge of various lenders’ offerings.
7. Future Financial Plans: Consider how the mortgage fits into your overall financial strategy, including potential need for HELOCs or other financial products that banks might offer.
8. Down Payment Size: A larger down payment may give you more options, as some lenders (including banks) offer better rates for buyers who put down more than the minimum required.
9. Closing Timeline: If you need a quick closing, a bank may process your mortgage faster, whereas a broker may take longer while searching for the best lender.
10. Prepayment Privileges: Some banks and lenders offer more flexibility in making extra payments or paying off your mortgage early. Consider how important this is to your long-term financial goals.

Which Option Is Best for You?

Both banks and brokers have advantages. According to the 2023 CMHC Mortgage Consumer Survey, 52% of Canadians obtained their mortgage through a bank, while 43% used a broker.

Regardless of your choice, shopping around is essential. Most buyers contact at least three lenders and two brokers before finalizing a mortgage. If you’re buying a home in Toronto’s High Park, Junction Triangle, or Bloor West Village, our team at Smith Proulx can connect you with trusted mortgage professionals to ensure you secure the best financing for your new home.

Ready to Buy? Let’s Talk!

Getting pre-approved is the first step in your home-buying journey. Whether you choose a broker or a bank, we can help guide you through the process. Contact the Smith Proulx Team today to start your search for the perfect home!