So, you’ve decided to get a mortgage. Now, the next big question is where and how to get your mortgage loan.
Is it worth hiring a mortgage broker to help you find a good deal? Or should you skip the middleman and go straight to a bank?
Here’s what you need to know before making your next significant choice — deciding to work with a mortgage broker or a direct lender, like a bank.
Working with a mortgage broker
A mortgage broker is essentially a middleman. They are the mediator between the borrower (you) and the lender.
A mortgage broker does not have a product to sell but instead will connect you with their lending partners to find the best deal for your needs and circumstances. This network can be hugely advantageous because often mortgage brokers can offer better rates thanks to their relationships with lenders.
If you are a creditworthy borrower (such as someone with a solid credit rating or who can pass the stress test), the mortgage broker will not charge you any fees. However, if you aren’t creditworthy, you may be charged a fee.
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Pros and cons of getting a mortgage through a broker
- Large selection. Mortgage brokers can offer and compare mortgage products from multiple lenders.
- Discounted rates. They may also be able to offer discounted rates that you couldn’t access on your own.
- They’re on your side and legally obligated to work in your favour.
- You won’t get every option. Not all lenders work with mortgage brokers, so your lending pool may not be as big as you think.
- Fees. Even though mortgage brokers are free for creditworthy borrowers, there are still fees to be aware of built into your contract.
Working with a bank as a direct lender
If you go directly to a direct lender, like a bank, for your mortgage, they will only offer one mortgage product: theirs.
Of course, you can shop around at different banks on your own, but that adds up to a lot of legwork and research that you wouldn’t have to do yourself if you had used a mortgage broker.
That’s not to say that you should cross out going to a big bank for a mortgage. If you are a regular client of a particular Canadian bank, you could use that relationship to your advantage and leverage your loyalty to get a better rate.
» MORE: How to negotiate your mortgage
Pros and cons and getting a mortgage directly from the bank
- Familiarity and trust can be a big deal when it comes to something as important as buying a home.
- You can leverage your relationship. It may be possible to get better deals and perks with the bank if you have a relationship with them, but you will have to negotiate those independently.
- Limited selection. Banks only offer their own products.
- Strict conditions for approval. Banks typically have higher eligibility requirements, which can make it challenging to be approved.
Is it easier to get a mortgage through a broker?
When it comes down to it, deciding whether or not to use a mortgage broker is a personal decision, but yes, they can make things easier. They save you a lot of work since they research for you. Mortgage brokers often also have access to rates that you wouldn’t get by finding a lender on your own.
Keep in mind, mortgage brokers may charge you fees if you are not considered a creditworthy borrower. Inability to pass the stress test, high debt service ratios and a poor credit score can result in high mortgage broker fees and other expenses. Of course, these additional costs may be worth it if you would otherwise not be able to secure a mortgage.
Big bank and mortgage brokers tend to be the most popular options that Canadians turn to when finding a mortgage.
However, they aren’t the only options. Today, there are also plenty of online comparison sites that can help you find a mortgage online. You can also look to credit unions, caisses populaires, trust companies, insurance companies, loan companies and even private lenders.
If you are not using a broker, take the time to shop around and compare lenders to find the best rates.