Is there a difference between a mortgage broker and going to a bank?

When you decide to apply for a mortgage, you can turn to either a bank or a mortgage broker in Toronto. Especially if it is your first time obtaining a mortgage, you may not understand the difference between a broker and a bank. Why use a mortgage broker instead of a bank? A bank can only offer you its own mortgage products. However, mortgage brokers do not work for a particular financial organization, meaning that they can recommend mortgage products from numerous lenders, giving you the freedom of choice. A mortgage broker acts as an intermediary, linking borrowers with mortgage lenders. Mortgage brokers offer services like negotiation, product comparisons, and financial analysis. Therefore, working with a broker can help land you a better mortgage deal.

Mortgage Broker vs Bank – Main Differences

When seeking an affordable mortgage rate, you can choose to work with a mortgage broker or go directly to the bank. Depending on your financial situation, each option can be ideal. So how can you decide whether to work with a bank or a mortgage broker? You must first understand the difference between banks and mortgage lenders, as well as the pros and cons of each, to understand which works best for you.

The main difference between banks and mortgage lenders is that banks can only offer you their own products; they cannot sell mortgage products from other institutions/competitors. On the other hand, a mortgage broker can provide you with mortgage products from different lenders. Mortgage brokers have a large network of mortgage lenders with different rates. Working with a mortgage lender gives you the opportunity to compare rates from other institutions, enabling you to choose the lowest rate or the specific mortgage terms you seek. Since mortgage brokers frequently work with mortgage lenders, they can help you access great discounts.

To understand exactly how mortgage brokers differ from banks, you can go by CHMC’s 2019 mortgage consumer survey. This survey revealed that mortgage applicants were happy and satisfied with the services from both mortgage brokers and banks. The main criteria that mortgage borrowers use in deciding whether to work with a bank or a mortgage broker are the interest rates offered and the level of service.

Obtaining a mortgage through a mortgage broker gives you more options and flexibility. Federally regulated financial institutions like banks must conduct a mortgage stress test to determine whether you can afford the mortgage payments. However, institutions like credit unions, B Lenders, and private lenders do not need to conduct mortgage stress tests, giving you more flexibility. However, you do not necessarily have to go through a mortgage broker to reach less-known mortgage lenders. You can reach some lenders directly, especially small lenders.

Banks build lasting relationships with their clients. If you have been with your bank for a long time, they already understand your financial situation and could easily grant you a mortgage approval. Banks also offer comprehensive products and can help you access other financial products like insurance, HELOC, other loans, and credit cards.

On the other hand, mortgage brokers provide comprehensive mortgage advice. Mortgage brokers also offer lower mortgage rates because they compare offers from different lenders. Studies indicate that 67% of mortgage borrowers use a mortgage broker repeatedly to access the best rate. Mortgage brokers also make it easier and save time on shopping around and comparing mortgage products.

Research reveals that 35% of banks follow up with homebuyers after the mortgage transaction compared to 46% of mortgage brokers who follow up with buyers after a transaction. Studies also indicate that 78% of the people who renewed their mortgage with their bank were satisfied with the experience, while 83% of people who renewed their mortgage with a mortgage broker were happy with the experience.

Mortgage Broker vs Bank Pros and Cons

Mortgage Brokers Pros

Some of the benefits of obtaining a mortgage from a mortgage broker include:

  • You will have a variety of mortgage products to choose from because mortgage brokers provide mortgage products from multiple lenders.
  • A mortgage broker can help you access discounted mortgage rates that you can’t access on your own.
  • A mortgage broker works for you and has your best interest at heart; they will go out of their way to get you the best mortgage deal. Since the mortgage broker has been in the mortgage industry for years, they understand the ins and outs of the mortgage market; the broker will use this experience to your advantage.
  • Mortgage brokers can help you access B-lenders (secondary lenders) who offer easier mortgage approvals at a slightly higher rate.
  • Mortgage brokers have long-term relationships with lenders, which can work in your favour.
  • The lender who gets your mortgage business pays the mortgage broker, so you will not incur any cost for working with a mortgage broker.

Mortgage Brokers Cons

Below are some of the cons of working with a mortgage broker:

  • Some mortgage lenders do not work with brokers. Therefore, you may find better mortgage products by shopping around in different financial institutions. Working with a mortgage broker could make you miss some offers since the mortgage options a broker offers you will depend on their lender network.
  • It will take longer to secure a mortgage through a broker, and a lot of paperwork is involved. You may opt to work with a bank with which you have an existing relationship, especially if you are working on a tight deadline.
  • Service quality is not always guaranteed since not all mortgage brokers are experienced; you must be careful when choosing a broker.

Getting a Mortgage Through a Bank Pros

Here are some of the benefits of obtaining a mortgage from a bank:

  • It can be comforting to work with a bank that you are familiar with when making a major financial transaction like purchasing a home. Therefore, working with your local bank could take some of the stress that comes with buying a home.
  • If you have a long-term relationship with your bank, it can be easier to negotiate for a better mortgage rate. You can also access better deals and perks with your bank if you have an existing relationship with them since it is easier to negotiate with the bank.

Getting a Mortgage Through a Bank Cons

Here are some disadvantages of obtaining a mortgage directly from a bank:

  • There is a limitation on the selection of mortgage products you can access since banks can only offer their own products — banks cannot market products from other banks or private lenders since that would be like promoting the competitor’s products.
  • It is harder to get a mortgage approved in a bank since most banks have a higher mortgage approval threshold. For example, banks have high eligibility criteria, which can make it hard to be approved. If you have a poor credit score, a bank is unlikely to lend to you. It must also be evident that you can afford the mortgage products.

Alternative Options to Get a Mortgage

Banks and mortgage brokers are the main options that Canadians go to when seeking a mortgage. However, these are not the only mortgage lenders. You can go through different online comparison sites to help you find a suitable mortgage product online. You can also explore credit unions, insurance companies, trust companies, private lenders, and loan companies. If you decide to approach a lender directly instead of going through a mortgage lender, you must look closely at all the mortgage offers available, including the terms, rates, and fees, to find the most suitable mortgage deal. Ultimately, deciding where to obtain a mortgage product is a decision that only you can make.

Is it Better to Use a Mortgage Broker or a Bank? – Final Thoughts

Are brokers better than banks for getting a mortgage? There are advantages and disadvantages of working with a mortgage broker and going directly to the bank. It all depends on the option that makes sense for you and your financial situation. If you are sure about the exact type of mortgage you need and have a good credit score, it may be best to go to a bank. Banks provide additional products that you cannot obtain from a mortgage broker. The products include HELOCs and insurance. You could also opt for a bank if you have a good relationship with your bank or if you prefer to visit a physical branch for your mortgage transactions. A significant percentage of Canadians prefer going directly to their bank for a mortgage instead of working with a mortgage broker. According to a 2020 consumer report produced by Mortgage Professionals Canada, 54% of mortgage applicants in Canada preferred going directly to their bank for a mortgage.

Working with a mortgage broker would be a great option if you are not sure about the type of loan you need or if you do not have a good credit score. Mortgage brokers have a large network of mortgage lenders and programs, including private mortgage lenders. They will help you to choose the best fit for your unique situation. It is particularly good to work with a mortgage broker if you do not fit the description of a conventional mortgage borrower. For example, self-employed people might have a hard time obtaining a mortgage from a bank. They are better off working with a mortgage broker.

A mortgage broker leads you through the mortgage application process, handling all your questions and concerns. You will not incur out-of-pocket expenses to work with a mortgage broker because brokers do not charge borrowers for their services. A mortgage broker is a viable option for many borrowers. For example, in 2020, 40% of Canadians obtained mortgages through mortgage brokers.

Why hire a mortgage broker?

In recent years more and more people have been switching to mortgage brokers. Mortgage brokers can help you with bank and private mortgages. Mortgage brokers take care of the whole process, they know the ins and outs of the industry and have access to better rates and lending conditions as well as know . As opposed to a bank where everything is done by the customer and the whole process can take a lot longer. Top mortgage broker can also be very helpful when your credit rating is low – they know non-traditional lenders other than big banks who are willing to give loan to people with adverse credit.