One of the major questions homebuyers face is whether to work with a bank or a broker to secure their mortgage. With Canada’s housing market remaining hot even against the backdrop of a pandemic, and the government enacting stricter rules in recent years about qualifying for a mortgage, that debate has taken on new importance.
According to the Canada Mortgage and Housing Corporation’s 2019 consumer survey, Canadians are nearly split on the question — 47% of 2019 buyers used a broker, while the remaining 53% turned to a financial institution.
Both options have benefits, but the decision will likely come down to buyers’ personal circumstances. Here’s what you need to know about making the choice.
What are the advantages of working with a bank to get a mortgage?
Buying a house is likely the largest financial decision you’ll make — but it doesn’t happen in a vacuum. Working with a bank can help you consider the larger financial picture: what does a low interest rate now mean for you years down the road? And how do your mortgage terms fit into the context of your personal and financial goals and your future retirement needs?
If you get your mortgage with the same institution you bank with, you can consolidate most or all of your financial services with the same provider. This might make it simpler for you to get something like a home equity line of credit (HELOC), for instance. Some banks also offer additional benefits, such as paying your home’s appraisal fee or giving you a cash-back bonus.
On the other hand, banks offer only their own products. While they do regularly give discounts on their posted mortgage rates, it’s often on the buyer to start the negotiation. You can shop around with multiple banks, but you’ll go through the credit check process and paperwork numerous times, which can impact your credit score.
As financial institutions that are federally or provincially regulated, banks are required to meet federal underwriting guidelines, and their size and scale provides stability through potential market volatility, where smaller lenders could be disrupted by an economic crisis. They can provide good mortgage rates, but tend to look for lower-risk borrowers and will have stricter policies around credit score, job stability and even the type of property you want to purchase. They may not be willing to lend to people with trickier financial histories.
What are the advantages of working with a broker to get a mortgage?
Mortgage brokers function as a one-stop shop for multiple lenders, including banks, credit unions, online mortgage lenders, and trust companies. Besides the benefit of choice, you’ll only need to go through the credit check process once while being considered by numerous institutions. Brokers can also access exclusive deals that wouldn’t be available on the open market, can negotiate things like a better rate or a reduced application fee, and may get volume discounts with certain lenders that translate to lower interest rates for you.
Licensed mortgage brokers are focussed exclusively on mortgages rather than a host of financial services. This can be a real boon to first-time homebuyers, self-employed and lower-income Canadians, who may have less ability to negotiate with banks and are more likely to be impacted by things like the mortgage stress test and other federal rules around mortgage approvals based on income. Brokers can also offer HELOCs, and waive appraisal and legal fees the same way banks can.
The big benefit with brokers is choice. And because of that, they’re able to find solutions for people with complex financial circumstances, such as poor credit or a history of bankruptcy. They can work with alternative and private lenders to secure mortgages that banks otherwise couldn't or wouldn't approve. And some brokers even specialize in mortgages for people with adverse credit, though it’s important to really understand the terms of such loans, which could come with higher interest rates and penalties.
In essence, all the benefits of working with a bank are also the benefits of working with a broker. Whichever option you choose, it’s in your best interest to take the time to compare mortgage rates. LowestRates.ca works with both banks and brokers, so you’ll always find the best prices on our site, regardless of who you choose.