Bank Lenders Versus Mortgage Brokers.

Where to Get Your Mortgage Loan

When shopping for mortgage options, home buyers mainly choose between a direct bank lender (or another financial institution) and a licensed mortgage broker.

These two primary mortgage providers, which account for an almost even split of the market, offer different access to rates, terms, and approvals, which can appeal to different borrowers.

Another factor that plays a part in the decision-making process is the borrower’s relationship with the potential lender, if there is a pre-existing one. Find out the specific differences between bank lenders and mortgage brokers below to help you decide which mortgage provider is right for you.

Rates and Terms

A bank lender offers a standard selection of mortgage rates based on the Bank of Canada’s lending rate plus its own adjustments based on various individual factors on the borrower’s end. For example, the loan-to-value ratio, the borrower’s credit score and overall risk, and the type of mortgage selected will determine what kind of rate the bank lender may offer.

A mortgage broker can compare rates and terms offered by various direct lenders, including banks, credit unions, other financial institutions, and even private lenders. More options mean more flexibility for borrowers with lower credit scores or those who want to find more favourable lending terms.

Additionally, brokers often have access to special rates based on their volume of clients, which typical borrowers do not have access to.

Flexibility and Options

Banks typically offer a standard selection of mortgage terms between 6 months and 10 years, allowing you to choose between fixed and variable rates and open, closed, flex, or convertible mortgages. These offered rates are readily available on their websites, but new and returning bank clients will sometimes have access to special loyalty rates.

Brokers, however, have access to many more mortgage lenders, including A lenders and B lenders.

This allows borrowers to access more personalized options and work with financial and credit challenges. They may have access to mortgage products tailored to those with low credit scores or who are buying a home for the first time.

Relationship and Service

As many Canadians already rely on one major bank for most of their daily spending and saving, borrowers will often have a built-up rapport and relationship with a bank lender. Trust and familiarity are some of the reasons why it’s a seamless decision to go with a direct lender that you already use for other types of banking and financing.

These institutional lenders can be counted on to provide a high level of professionalism, but if you have an especially strong loyalty with your bank, you may also be able to take advantage of special preferred rates and an expedited process.

Mortgage brokers, on the other hand, require a bit more work to find. While searching, make sure you find one that is fully licensed in Ontario. You can research brokers online and ask friends and family members if they can refer you to someone who has good communication skills, a wide network of lenders, and provides prompt service.

Brokers often specialize in one type of client as well, such as persons with low credit scores or individuals looking to invest in a secondary property, so keep an eye out for their set of services and experiences and how they may be able to help you in your unique situation.

Additionally, it is worth noting that brokers use their connections and negotiation skills toward achieving client success, while bank lenders mainly have their institute’s best interests at heart, and you will have to negotiate with them directly.

Fees and Commissions

Banks are direct lenders, so they typically do not charge additional fees if you sign up for a mortgage with them—they make money from the interest they charge on the mortgage loan.

Mortgage brokers, however, act as middlemen who receive a commission from the transactions that they broker. They may also charge borrowers a broker or placement fee, which can be a fixed amount or between 1% and 3% of the loan amount.

The fee may be based on the complexity of the deal, such as having multiple properties or needing to verify self-employment income.

Make sure you check what fees are expected before signing up with a broker! As commissions are based on the loan amount that the borrower agrees to, be wary of a broker who pushes you to take out a larger mortgage than you need or are comfortable with.

Approval Process and Speed

Bank lenders have strict requirements for their mortgage approvals based on the borrower’s financial health, including income, debt, and loan-to-value ratio. This can take time to review and process, so if you want to shop around at multiple bank lenders, you may need to allocate more time to find the best rate.

Mortgage brokers work with more options and often deal with high-risk borrowers, so they are more familiar with handling challenges. Alternative lenders may also be more lenient with approvals, which is good news for high-risk borrowers who are unlikely to be approved by traditional banks.

Brokers can also do more of the legwork for you, finding the most suitable rate for your situation among the many lenders available and helping to fill out the required paperwork to save you time.

Bias and Independence

Bank lenders will only promote and sell their own mortgage products, which limits the borrower’s ability to find better rates. Due to their limited scope, they may also be less familiar with the whole market, which means they are generally less competitive.

Mortgage brokers have the freedom and flexibility to look at multiple lenders and find the lowest rate and most flexible terms for their clients. As they deal with a variety of borrowers and lenders, they will be much more well-versed in the market and know exactly what constitutes favourable rates and terms for their clients.

Choosing between a bank lender and a mortgage broker ultimately depends on your individual financial situation, preferences, and priorities. Bank lenders offer stability, convenience, and familiarity, especially if you already have an established relationship with a financial institution.

On the other hand, mortgage brokers provide greater flexibility, access to a broader range of lenders, and tailored solutions that can be ideal for borrowers with unique circumstances or those seeking better rates.

Both options have their advantages, so it’s important to weigh them carefully, considering factors like qualifications, rates, approval speed, and the level of service you require. By thoroughly understanding the differences, you can confidently select the mortgage provider that best aligns with your home-buying goals in BC.

Contact Stan at 604-202-1412, if you need suggestions in finding great financial experts.