Why Use a Mortgage Broker Instead of a Bank?
(Five-minute read time)
Purchasing a house can be a daunting and stressful process. Homes are generally the most significant investment a person will make in their lives, so we need to be sure that we are equipped with the right tools and knowledge to get the deal done as quickly and hassle-free as possible. We also need to contemplate and plan for our financial future.
In decades past, the only way to acquire a mortgage was to go through a bank. However nowadays, it's extremely common to utilize the expertise of a mortgage broker – in fact, the Canadian Mortgage and Housing Corporation (CMHC) reports that in 2019, one third of all home buyers received recommendations to use a mortgage broker. But which option is genuinely better for prospective buyers, and why?
Here is a breakdown of what a mortgage broker does, the differences between using a broker and a bank, and factors you need to consider before deciding what is suitable for you and your particular financial needs.
What Is a Mortgage Broker?
Mortgage brokers are licensed professionals who have dedicated their lives to offering mortgage financing services to potential homebuyers. Brokers serve as your representative when you are in search of a mortgage lender. A broker will also assess your situation to help establish the top rate and product to best suit your needs.
Since brokers are independent of any lender, they can provide you with qualified advice that has your best interests in mind and not the interests of your bank. Mortgage brokers are also privy to exclusive mortgage rates that may not be accessible on the retail market.
Working with a local broker offers additional benefits as well. You can meet your broker in-person to discuss your needs, and they will have a familiarity with the local housing market. This information can help you get closer to the home of your dreams in an area you prefer.
What Are the Differences Between Getting a Mortgage from Your Bank vs From a Broker?
Although it may seem like banks and mortgage brokers have similar roles in the home buying process, both act quite differently in how they can assist you when you're looking for a mortgage. Here are the main differences in how both banks and mortgage brokers operate:
Getting a Mortgage from a Bank
To get a mortgage from a bank, it must be a chartered institution that offers personal banking, credit cards, loans, and mortgage services. The bank works as the lender, and it will put the mortgage application together for you. There are pros and cons to using a bank to secure a mortgage.
PROS OF WORKING WITH A BANK
Banks will allow you to combine your services with a provider that you currently have an ongoing relationship with.
You can form a long-term relationship with the institution, which could be convenient in the future.
Some banks may offer exclusive discounts or benefits if you are an existing customer.
You may be offered a variety of savings on checking accounts, credit cards, or other products through the bank that you use as your lender.
CONS OF WORKING WITH A BANK
Banks can only access and offer clients their own rates and products, so they can be less flexible, with fewer loan options available.
Due to being subject to federal compliance and regulations, banks carry much stricter lending standards. A less-than-perfect credit score or a prior adverse financial event on your record may make it harder to qualify.
Banks have less specialized mortgage lending knowledge than a mortgage broker who has an extensive understanding of mortgages.
Receiving a mortgage through a bank may come with higher penalties if you want to prepay or get out of the mortgage.
A bank may harass you to sign up for other services or products you don't need or want.
They may not have in-house loan options geared towards specific types of buyers, such as buyers who are self-employed, or investors.
It typically takes longer to close on a bank loan compared to your other options.
Using a Mortgage Broker
Mortgage brokers are dedicated professionals whose expertise is in the field of mortgages and the mortgage lending process. They are free of allegiance to any particular bank or lender and look to offer advice tailored to their clients' needs and individual financial situation.
PROS OF WORKING WITH A MORTGAGE BROKER
All the negotiating and paperwork associated with the mortgage application is done by the broker.
The services of a broker are free, as they typically get paid by the lender after an agreement about the mortgage loan has been accepted. (See my article on How a Mortgage Broker Gets Paid)
Since brokers operate independently, they can work longer hours, making it easier to with your schedule.
A mortgage broker can interact with multiple potential lenders including many big banks, to help get you the best agreement possible.
Brokers have up-to-date knowledge of the industry, as well as extensive training. This makes them the perfect teammate to have on your side fighting for you.
Brokers are less rigid than bank branches, so there is more flexibility to negotiate on terms.
Loans close faster when working with a mortgage broker compared to a bank branch.
CONS OF WORKING WITH A MORTGAGE BROKER
Depending on your broker, you may have a shorter list of potential lenders, as not all lenders work with brokers.
Unlike a bank with which you may have a prior relationship, you will have to build a rapport with a broker.
A broker's goals and your own might not complement each other.
In some cases, you may be charged a small broker's fee. This typically occurs when certain types of loans are trying to be acquired, such as bad credit mortgage loans or a non-confirming income mortgage loan.
How to Choose Between a Mortgage Broker or a Bank
There is no clear-cut answer to which option is best for you when deciding between using a bank or a broker to obtain a mortgage. It's really about finding a situation that you feel the most comfortable with and that serves your financial interests in the best way possible. Purchasing a home is a major investment, so ensure that you fully contemplate your options before finalizing your decision.
Contact the professionals at WealthTrack today and learn more about what our team can do to help get you into your next dream home or investment.
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