When securing a mortgage loan, the options can seem overwhelming.
On the one hand, you have the traditional route of going directly to a bank. On the other hand, you have the option of working with a mortgage broker.
While both options have pros and cons, using a mortgage broker can offer a range of benefits, from access to multiple lending options to personalized service and tailored mortgage solutions.
In this article, we’ll explore the advantages and disadvantages of using a mortgage broker instead of a bank and provide you with the information you need to make an informed decision.
Maximizing Your Mortgage Options
Most consider a visit or talk with their bank as the first step of the house purchase process.
You will absolutely feel more comfortable sharing your financial information with your bank since you have built that trust over several years of financial relationships.
Additionally, your bank already has much of the information needed for the preliminary evaluation of your home-buying potential.
However, securing the right mortgage loan requires more than just a good relationship with your bank.
A mortgage can be the most expensive initiative you will ever take in your life, and it is a long-term obligation that can last 25 to 30 years with significant monthly expenses for your family.
Therefore, exploring all options beyond your bank is crucial to ensure you get the mortgage that best fits your unique circumstances and offers the best market rate.
This is where a mortgage broker can help.
A mortgage broker can research the market to find the right mortgage loan at the best rate for you.
Before discussing why you should consider using a mortgage broker instead of your bank, let’s first define a mortgage broker and why you should consider using one.
What is a Mortgage Broker?
A licensed mortgage broker is an intermediary between you and multiple lenders to help you secure the best mortgage rate and terms.
Mortgage brokers can access a wide range of mortgage products from different lenders, such as banks, credit unions, and trust companies.
You will work closely with your mortgage broker to help them understand your financial situation, goals, and unique circumstances.
They will then use their knowledge and expertise to provide you with tailored mortgage solutions that align with your needs.
Keep in mind that mortgage brokers in Canada are regulated by provincial authorities and must meet certain standards and qualifications to ensure they provide ethical and professional services to borrowers like yourself.
Mortgage with Broker vs. Bank: Advantages Compared
Expanded Access to Lending Options
One of the key benefits of working with a licensed mortgage broker or agent is access to a wide range of lenders, including banks, credit unions, trust companies, and private lenders.
This extensive network of lending options provides you with more possibilities to compare and find the mortgage that suits your specific needs.
Additionally, mortgage brokers will handle most of the work involved in finding, applying, and getting the mortgage funded on your behalf, saving you time and effort.
Streamlined Process for a Seamless Experience
Getting a mortgage loan is a complex process involving many pieces that must fit together.
A mortgage professional, such as a broker, is trained to help you navigate this process by providing expert guidance and coordination.
This includes fulfilling lender requirements, selecting the right mortgage product, working with a lawyer, and communicating with the lender’s internal team.
Access to Exclusive Mortgage Deals and Discounted Rates
Lenders may offer exclusive rate discounts to their network of mortgage brokers.
Working with a mortgage broker allows you to take advantage of these lower mortgage rates and exclusive deals.
Lenders may even offer funding condition waivers, simplifying the mortgage process and reducing the documentation required from their trusted mortgage brokers and agents.
By leveraging a mortgage broker’s relationships and expertise, you can save money on your mortgage and enjoy a smoother loan experience.
Working with Licensed and Trained Professionals
In Ontario, mortgage brokers and agents must be licensed by the Financial Services Regulatory Authority (FSRA) to arrange mortgage loans on behalf of borrowers.
This is the same with provinces and territories in the country.
To obtain a license, mortgage professionals must meet specific educational requirements, ensuring they are trained and knowledgeable.
By working with a licensed mortgage broker or agent, you can be confident that you are working with a trained professional whose top priority is serving your mortgage needs.
Tailored Mortgage Solutions
Your income or credit profile may not meet the qualifications for a prime mortgage loan from a bank.
A mortgage broker can help you achieve your dream of homeownership by providing access to alternative mortgage solutions designed with low credit.
Your situation may need a clean-up of your debts to improve your credit score, or you want to extract money from your home’s equity to buy a new house.
They may suggest a second mortgage to assist with the down payment or explore low-credit mortgage loan options.
A mortgage broker can help you find the right solution to your needs and circumstances.
Dedicated Personalized Service
Licensed mortgage brokers and agents prioritize your best interests, as their payment depends on funding your mortgage.
This results in a highly personalized experience.
You will work one-on-one with the mortgage broker, who will take the time to understand your unique situation and provide tailored guidance and support.
Drawbacks of Mortgage with Brokers vs. Banks
While working with a mortgage broker can offer many benefits, there are potential drawbacks, such as cost, expertise, conflicting interests, and lack of rate guarantees.
Let’s examine these factors.
Possibility of Incurring a Brokerage Fee
If you decide to explore an Alternative Mortgage solution, you will be required to pay a fee for the services the mortgage broker provides.
Although the lender usually pays the mortgage brokers for bringing in clients, they may charge you a portion of the service fee if the lender does not cover it entirely.
In addition to the brokerage fee, you should factor in the lender’s, appraisal, and lawyer’s fees when applying for a mortgage with bad credit or non-qualified income.
These fees can be substantial and negate any savings you have gained from the brokerage fee.
Beware of “All-Purpose” Mortgage Brokers
With nearly 13,000 licensed mortgage professionals in Ontario, it can be difficult to choose the right one.
The high competition among brokers for your mortgage loan application can lead to some making false or exaggerated claims, such as guaranteeing the lowest rate or being able to solve every mortgage financing situation.
These “all-purpose mortgage brokers” may not have the expertise or specialized knowledge to handle your situation effectively.
Being cautious and working with specialist mortgage brokers can help avoid falling prey to unscrupulous brokers.
These brokers have expertise in specific fields such as first-time homebuyer mortgages, bad credit mortgages, rental property mortgages, commercial mortgages, or agricultural mortgages.
Potential for Conflicting Interests
While a mortgage broker is technically working for you, there may sometimes be a misalignment of interests in the relationship.
Lenders typically pay the mortgage broker a fee for coordinating the mortgage transaction, and different lenders have different compensation structures for brokers.
This can potentially influence the broker’s decision on which lender to use for your mortgage request.
The compensation could influence the broker’s decision instead of how the recommended mortgages best suit your needs and situation.
Choosing a reputable and established brokerage firm with a history of putting client interests first is important to avoid this potential conflict of interest.
Final Thoughts on Mortgage Broker vs. Bank.
The benefits of using a mortgage broker for your mortgage loan are clear.
They can handle the lender requirements, freeing up your time and allowing you to focus on other home-buying or refinancing aspects.
However, it is important to remember that the success of the process ultimately depends on the capabilities of your chosen mortgage broker.
While mortgage brokers can be a valuable resource, choosing one with the experience and expertise to help you achieve your desired outcome is crucial.