Why are more Canadians using mortgage brokers?
Before about the year 2000, the vast majority of Canadians turned to their banks when they needed a mortgage. But since then people have begun to use mortgage brokers more often. In fact, in 2023, according to the CMHC Mortgage Consumer Survey, 43% of Canadians used a mortgage broker to purchase their home.
In this article we look into the mortgage broker vs bank question, listing the benefits of each depending on the financial situation.
What is the difference in Canada between a mortgage broker and a bank for mortgages?
A mortgage broker, as the name implies, is a middleman that can compare, recommend and negotiate with a number of lenders to find you the best deal for your situation.
A bank, on the other hand, is a lender that directly sells their own mortgage products. This distinction has an impact on a number of factors from the type of service you receive to the types of products you are offered. Let’s unpack this, looking at representation, fees and the approval process, before we go into the benefits of each.
Representation
A mortgage broker represents you and your interests and does the leg work for you, whereas a bank is looking out for themselves. If you deal directly with a bank it will be up to you to shop around and do your due diligence.
You may very well end up with a mortgage from a bank even when you’re working with a mortgage broker — but in that case you can rest assured that it will be the best deal for you. Or you may end up with a mortgage from a different lender; the choices are more varied when you work with a mortgage broker. When you deal with a bank, your choices are limited to their suite of mortgage products. Furthermore, mortgage brokers often have discounts with major lenders such as banks, meaning that they could secure a better rate with a bank than you could if you were directly dealing with the same bank.
A mortgage broker will take you by the hand throughout the whole process: they compare mortgages, negotiate terms and rates on your behalf, and when you’ve made your choice they prepare the paperwork to submit to the lender. Along the way they explain the process to you and answer your questions. In other words, a mortgage broker facilitates the whole process.
When you are working directly with a lender such as a bank, you need to be your own advocate. You may work with different people for each interaction or step in the process.
Fees
Mortgage brokers don’t usually charge a fee directly (unless you need a mortgage from an alternative lender); they are paid a commission from the lender. Banks don’t charge a broker fee.
Approval Process
A mortgage broker has access to a large range of lenders, greatly increasing your chances of getting a mortgage if your financial situation is less than stellar such as bad credit or more problematic such as being self-employed, or if you are looking to buy a type of property that most conventional lenders would not consider supporting.
On the plus side, the approval process with your own bank is often shorter and simpler than when going through a mortgage broker, assuming you meet their often strict requirements.
What are the benefits for BC residents of using a mortgage broker?
There are quite a few advantages to using a mortgage broker, especially if you don’t have the time or inclination to compare lenders, you are new to the mortgage process or your financial situation is a bit more unconventional.
Disadvantages are few: namely the fees and the fact that it may take a bit longer as the broker searches for the best mortgage for you.
A mortgage broker will help with the whole process, starting with preparation
You can start working with a mortgage early in the process. A mortgage broker will assess your financial situation, so you are on a good, realistic footing to go house hunting. They will answer all your questions, regarding loans and will advise you on what you need in terms of documents to apply for a loan. With their high level of expertise, a mortgage broker can advise you on what to do and what to avoid.
A mortgage broker has access to a large number of local, provincial, and national lenders and mortgage products
This means that a mortgage broker will most likely be able to find a mortgage that suits your situation, even if you might not qualify for a loan at a bank.
Convenience
If you were to do it yourself, researching and reaching out to various lenders is time consuming. The application and closing processes are also time consuming including abundant communication with the lender and lawyers to gather together and process the proper documentation. A mortgage broker manages all this, saving you time and stress.
What are the benefits for BC residents of using their existing bank for their mortgage?
If you have a good relationship with your bank, you like to be in control and have a conventional financial profile, you may prefer to work directly with your lender. Disadvantages might include: a limited number of products, you need to be your own advocate, convenience and time.
Direct connection with the lender
Since you are working directly with the lender instead of through a middleman, you may be able to deal with questions and problems quicker as they arise. Since the bank employees know you, the whole process is usually quicker and easier, assuming you meet the criteria.
Potential preferential rates for existing customers
A bank may reward their valued customers with good deals when you approach them for a mortgage. You should still shop around though; it will put you in a stronger position for negotiating.
Fewer fees
A bank is not your advocate and they don’t help with the process, therefore they may not charge or waive some fees that you may incur dealing with a mortgage broker.
What’s better for Canadian home purchasers for their mortgage? A mortgage broker or a bank?
If you are confident in doing your own research and have experience with the mortgage process, you may be able to cut out the middleman and do it all yourself. For most people, however, a mortgage broker takes the stress out of the process, reduces head-aches and is able to secure a deal you most likely would not have been able to wrangle on your own, and best of all if your deal falls within the conventional norm, you’ll likely pay nothing for their stellar service!