Whether you’re buying a house or refinancing or renewing a mortgage, you’ll need to make numerous decisions, including amortization period, mortgage term and whether you want an open or closed mortgage.
You also have several options to consider when choosing a mortgage provider. You can obtain your mortgage from a bank – the traditional method for many years – or you can work with an independent mortgage broker, an option that has been growing in popularity in recent years. A fewer number of people choose to obtain their mortgages through credit unions and trust companies or private lenders.
Mortgage brokers and banks are different in a number of ways. Let’s have a look.
WHAT IS A MORTGAGE BROKER?
A mortgage broker is a licensed specialist who has access to multiple lenders and mortgage rates, including some of the big banks, and shops around for the best product and terms on your behalf. Because of the large number of clients and deals they bring to a lender, brokers receive volume discounts, which they can pass on to you in the form of a lower rate. Some people with bad credit find mortgage brokers especially helpful.
A mortgage broker doesn’t issue your mortgage loan. Rather, s/he acts as a liaison between you and the lender. When you finish working with a mortgage broker, you’ll make your monthly mortgage payments to your lender of choice. Banks, on the other hand, issue the mortgage to you directly and receive your monthly mortgage payments.
A mortgage broker’s knowledge of the entire mortgage market is regularly cited as one of their key advantages but you’ll want to avoid brokers who may only compare the rates from only a few lenders. Dealing with an established and high-volume broker who isn’t under the same pressure as a less-established broker to send a set amount of volume to a particular lender can be advisable.
WORKING WITH A BANK
A bank can help you secure a mortgage offered through its institution, which may offer many different mortgage products. Many bank customers don’t realize they have negotiating power when it comes to mortgages, especially if they have a good credit rating and borrowing history. Also, many banks offer discount mortgage rates to existing customers that may not be available through a mortgage broker that are worth exploring.
COMPENSATION
There’s no fee to work with a bank, which is compensated by the interest on the loan. Mortgage brokers generally don’t charge fees for their services. Instead, they typically receive a commission from the lender when they arrange a transaction. The Financial Consumer Agency of Canada – Canada.ca offers additional information you might find helpful:
• Some lenders only offer their products directly to borrowers, while some mortgage products are only available through brokers.
• Mortgage brokers don’t all have access to the same lenders. This means the available mortgages vary from broker to broker. When you’re considering a mortgage broker, ask which lenders they deal with.
PROS AND CONS
Still wondering which mortgage provider is right for you? Consider these pros and cons as identified by RateHub.ca, a website that compares financial products:
Bank Pros: Banks allow you to consolidate your services with one provider you already work with and have deemed trustworthy.
Bank Cons: Banks can only offer their own rates and products. Banks will give discounts on their posted rates but you’re responsible for negotiating.
Mortgage Broker Pros: Mortgage brokers shop around for the best rate and product to match your current financial situation. Brokers also pass on volume discounts to you.
Mortgage Broker Cons: Mortgage brokers are not familiar with you at first; first-time homebuyers would not have a pre-existing relationship with them.
Some things you may want to ask yourself when making the decision to work with a mortgage broker or a bank/lender: Do I have time to shop at multiple financial institutions and negotiate with each? Do I feel comfortable negotiating? It’s also important to remember the cheapest rate doesn’t necessarily equal the least money out of pocket. Things like costly payout restrictions, lender refinance policies and accelerated payoff privileges can add or subtract thousands from your total borrowing costs.
Regardless of whether you choose to work with a mortgage broker or a bank, I recommend understanding what rates are out there before you begin shopping for a mortgage. Whether you’re interested in buying or selling, please know I am committed to looking out for your best interests and will be there for you every step, taking care of detail. I look forward to helping you find your first or next home!
