Mortgage Broker vs. Bank: Which Is Better?
Are you planning to buy a home? When it comes to mortgage lenders, you have two main options: banks and mortgage brokers. Both have pros and cons, and understanding the differences can help you decide which option is better for you. In this article, I explain the differences between banks and brokers and help you make an informed decision.
The Difference Between Banks Versus Mortgage Brokers
Banks are financial institutions with their own mortgage products, meaning when you apply for a mortgage with a bank, you’ll only have access to the mortgage options they offer. This may limit your choices and potentially result in a less competitive rate.
However, working directly with a bank can give you more control over the mortgage process, and it may sometimes be less expensive because there’s no middleman involved.
On the other hand, mortgage brokers serve as intermediaries between you and various financial institutions. They don’t lend you money themselves; instead, they work with different lenders, like banks and credit unions, to find the best mortgage option tailored to your unique needs.
Working with a mortgage broker gives you access to a broader range of mortgage products and potentially more competitive rates.
Mortgage brokers can also save you time by streamlining the application process. They gather all the necessary paperwork and submit it to different lenders on your behalf, which is helpful if you’re busy or unfamiliar with the mortgage process.
Advantages Of Dealing With a Bank For Your Mortgage
Canada’s banks have advantages that will appeal to many prospective homebuyers. Let’s take a closer look at what those are.
They’re stable: Banks have a solid reputation as being stable and reliable. You’ll know your mortgage is managed by a trusted and regulated institution, offering a sense of security and peace of mind.
It’s a one-stop shop: When you get your mortgage through a bank, you have the convenience of having all your banking products under one roof. You can view your mortgage details on the same online banking profile as your chequing and savings accounts, credit cards, and investments. You can easily inquire about your mortgage and make changes, i.e., make a lump sum mortgage payment or change your payment amount or frequency.
You can benefit from an existing relationship: If you already have a good relationship with a bank, they may be more willing to offer you better terms on your mortgage. Banks are interested in keeping their customers happy and loyal, so they may offer perks like lower interest rates or waive specific fees for their existing clients.
They offer in-person services: Many banks have physical branches where you can meet with a mortgage specialist face-to-face. This can be helpful if you prefer in-person interactions and want to discuss your mortgage options and ask questions in real time.
Drawbacks Of Dealing With A Bank
Depending on your situation, there may be drawbacks to getting a mortgage through a bank.
Banks can only offer their mortgage products. This may limit your options, as banks don’t have access to a wide array of mortgage products from different lenders like mortgage brokers do. This could lead to you accepting a mortgage loan with less favorable terms or a higher interest rate.
Negotiating with a bank can be daunting. While they may offer flexibility on rates and terms, banks typically have less room for negotiation than brokers, who can shop around for the best deal on your behalf. As a result, you might end up with less favourable conditions than you would if you worked with a broker.
Many bank advisors aren’t mortgage specialists. While bank advisors are knowledgeable, not all of them are mortgage specialists. While they work on mortgages for clients, they also provide investment advice or open bank accounts. Mortgage brokers are specialists who only deal with one product: mortgages. Brokers don’t have to switch gears or wear different hats. If you are dealing with a bank for your mortgage, request a mortgage specialist who can give your mortgage the attention it deserves.
Advantages Of Dealing With A Mortgage Broker
A mortgage broker can provide some significant advantages over going directly to a bank. Here are a few key reasons to consider working with a mortgage broker.
Access to multiple lenders: Mortgage brokers have relationships with numerous lending institutions, allowing them to offer you a wider range of mortgage products and rates. Banks, however, can only provide you with mortgage options from their own company.
Tailored options: Your financial situation is unique, and a mortgage broker will work diligently to find mortgage solutions regardless of your situation. Not every borrower fits inside the narrow box that banks play in. If you have less than stellar credit, are self-employed, have fluctuating income, can’t provide standard income documents, or your down payment isn’t from a traditional source, a bank may turn down your application. While approval is not guaranteed, a mortgage broker will have options the banks don’t have.
Potentially lower rates: Mortgage brokers can access lenders that offer more competitive rates than a traditional bank. They can also secure additional discounts through mortgage buydowns, resulting in even more savings.
Convenience: Mortgage brokers typically take care of a lot of the legwork for you. They can handle the research, negotiate, and assist you with the mortgage application process, saving time and eliminating some of the stress of getting a mortgage.
No out-of-pocket cost: In most cases, mortgage brokers are paid by the lenders, meaning their services won’t cost you any additional fees. This can be a significant advantage, as you can benefit from their expertise without incurring extra expenses.
Drawbacks Of Dealing With A Mortgage Broker
Independent mortgage brokers can offer you a variety of mortgage products from different lenders, making it easier for you to find a suitable mortgage option. However, there are some potential drawbacks when working with a mortgage broker.
Not all mortgage brokers have access to the same lenders. This means that when you work with a mortgage broker, you may not be presented with all of the potential options available in the market. It’s essential to do your research to find the best mortgage option for your needs.
Mortgage brokers are paid a commission from the lender. While this means you won’t need to pay the broker directly, it can sometimes create conflicts of interest, as brokers might prioritize mortgage options from lenders that offer higher commissions. Don’t be afraid to ask your broker how they are compensated and if they have a preferred list of lenders.
Working with a mortgage broker may not always be the fastest route to secure a mortgage. Often, brokers can get approval more quickly than a bank or credit union. But it’s not always the case. Since brokers need to communicate with multiple lenders on your behalf, the mortgage approval process may take longer than if you were to apply directly with a bank. If you’re on a tight timeline, you may want to consider working with a bank or credit union for more direct control over the application process.
Ultimately, choosing between a mortgage broker and a bank comes down to your preferences and financial needs. As you can see, both options have their own advantages and disadvantages to consider before making a decision.
When working with a mortgage broker, you can benefit from their ability to search for and recommend mortgage products from several lenders. This may help you find a better mortgage rate and save money in the long run. Also, mortgage brokers usually have a more flexible schedule and can provide personalized service.
On the other hand, if you already have a relationship with your bank advisor, it might be more convenient to go directly through them for your mortgage. Banks can also provide additional financial services, such as checking and savings accounts, making managing your finances more straightforward.
No matter which path you choose – working with a mortgage broker or dealing directly with a bank – the most important thing is to find a mortgage solution that works best for you and your financial goals.
How do credit unions differ from banks and mortgage brokers for mortgages?
Credit unions are member-owned financial institutions that provide similar services as banks, including mortgages. The main difference is that credit union profits are returned to their members as lower fees or better rates, while banks are focused on maximizing profits for their shareholders. Sometimes, a credit union might have more competitive mortgage rates than a bank, but their options may be limited, as they don’t work with multiple lenders like a mortgage broker would.
Why would someone choose a bank instead of a mortgage broker?
Choosing a bank for your mortgage can be convenient if you already have an existing relationship, making consolidating your finances in one place easier. Banks also typically have a strong reputation and a wide range of mortgage products.
What is the role of a mortgage specialist in comparison to a mortgage broker?
A mortgage specialist usually works for a specific financial institution, such as a bank, and can assist you in finding a mortgage product within their employer’s offerings. While they can provide valuable advice and help you navigate your mortgage application, they cannot offer products from other lenders.