Whether you’re a first-time home buyer, or you’ve owned a home before, the options for obtaining a mortgage today are extensive. Not only are there conventional methods through your neighborhood bank, but there are now many independent mortgage companies, such as mobile brokers, that will come right to your door.
The question remains: who to choose, and why?
For a quick overview of mortgage brokers and bank, check out the infographic below.
How a mortgage broker differs from a bank
A mortgage broker is usually an individual who works freelance for themselves. They have many lending contacts and can negotiate and offer very competitive, or “wholesale” interest rates, thanks to their large connection of lender contacts.
They process your credit application in the same way that a bank would and can help you determine what is affordable for you, often in the comfort of your own home and on your schedule.
A bank-based lender, on the other hand, only works for their bank. They, too, will try to get you the best rate possible, but it is you that has to do the negotiating for that rate. Banks don’t have the access to quite as many contacts as a broker does.
Pros and cons of a mortgage broker:PROS:
- They offer extremely competitive rates, often more competitive than a bank
- They will meet you anywhere, including after hours
- They can often get you approved for a loan with poor credit
- Since they are an independently operating business or freelancer, word-of-mouth referrals are extremely important. Therefore, they may offer to pay for your appraisal or legal fee in return for your business and referral – especially if you commit to returning to them once your mortgage term is up.
- They’re easy to get a hold of and to meet with, thanks to non-banker hours
- Although it is nice to be lent money with little or no credit, or to be approved for a mortgage that you may not be able to afford easily, it can be unscrupulous for them to advise you to do so (put you into financial trouble)
- The lenders may be smaller companies with little or no history (less borrower confidence)
- If there are quality control issues or you aren’t satisfied with the service, you don’t have a supervisor to complain to.
Pros and cons of a bank mortgage:PROS:
- Banks offer a high level of security (they are large corporations, so unlikely to go out of business) and are trusted and familiar for borrowers
- They may offer a perk or freebie with the mortgage, such as a free bank account
- Ease of services, such as ability to connect a mortgage to an existing account for payments
- The offer lines of credit, such as a home line, which can be attached to your mortgage
- Accessible, with 1-800 customer service numbers available at all times and branch availability
- You are responsible to do the shopping around and negotiating for the best interest rate, whereas a broker will do this for you.
- Subsequently, this also means that bank interest rates are not as good as mortgage broker rates
- Less able to overlook poor credit scores, so you may not be approved
Purchasing a home is likely the most expensive purchase you will ever make, and you want to make sure that your lender is the right choice for you. The fact of the matter is that the evidence suggests that there are tremendous benefits to utilizing the services of a mortgage broker.
The data tells us that most Canadians are not shopping around for their mortgage, for a variety of reasons. If nothing else, a mortgage broker can do the heavy lifting so that we are able to make more informed financial decisions.
So, are you planning to use a mortgage broker the next time you need a mortgage? Or are you happy with the rates you’re getting at your bank?
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