💚Using A Mortgage Broker Vs Your Bank🪙

 

Whether you’re a first time homebuyer, or you’re a seasoned veteran, many will go straight to their bank for their mortgage, without ever considering other options. I receive regular inquiries from potential clients who have said they’ve never used a mortgage broker before. I’ve even had one who told me that using a broker was way out of their comfort zone.

There are some that want to deal with their bank regardless. To them, dealing with a big bank is just ‘better’. It’s a place of familiarity, which makes them feel more comfortable. Anything unfamiliar means trying something new, which many will try to avoid. Kind of like when you go to a food festival and you see a line up at McDonalds. This always baffles me! It’s a food festival with so many delicious things to try.

Yet there are many who will not take the chance.

They know McDonalds, so they avoid everything else and jump into the line at the Golden Arches.

Is McDonalds better than all the other choices at the festival?

Or do you think there might be something significantly better that you have not heard of?

Just because you have not heard of something doesn’t automatically make it a bad choice. When it comes to money, people like to feel secure, which is why many feel comfortable with the bank. But remember, it is the bank who is lending you the money, not the other way around. There are some that use their bank solely because this is what their parents suggested, or because this is what their friends did.

Don’t get me wrong here, there are some cases when a major bank will be the best choice for your mortgage, however there are often better, and lower rate options. I’m going to discuss the differences between each option, so you can make a more informed decision. There are many who are not even aware of what a mortgage broker does, so let’s start there.

 

The Role Of A Mortgage Broker
The definition of a mortgage broker is one who brings the borrower and the lender together. The mortgage specialist at the bank is not a broker, since they can’t offer mortgage solutions outside of the bank they work for.

A broker on the other hand is not tied to any particular institution, and has access to many different mortgage lenders. They’ll take the time to determine your needs, and will then pair you up with the lender best suited to your particular situation. You’re looking for the lowest mortgage rate? Great! Rates can vary significantly from one lender to another. If you are speaking to BMO, they can only quote you the rates BMO is offering, and they’re not going to tell you if CIBC has a lower rate for example.

As mortgage brokers deal with many different lenders, they can source out the ones with the lowest rates, and therefore present you with the best options. A broker works for you, not the bank! A broker’s duty is to work for both the borrower and the lender without any preferential treatment to either. They need to look out for both.

While our paycheques come from the lender, you’re our client, and you’re the true source of our income. This is why we say we work for you, as you’re the one that we really need to please.

 

Mortgage Broker Myths
There are many myths about mortgage brokers, many are likely created by the big banks themselves.

• Extra or hidden fees
• Miss a payment and the lender will take your house
• If the lender goes out of business, then you will be facing a big headache and will be charged additional fees to get out of it
• Additional restrictions and fine print

Nothing can be further from the truth. There are no extra or hidden fees when dealing through a broker. If your situation is unique and you do not qualify based on income or credit, then there would likely be an additional fee attached. However, this would get disclosed to you at the beginning, and is not applicable to qualified applicants.

If a lender were to go out of business, their portfolio would simply be taken over by another mortgage lender. Your rate, payment, and all your terms and conditions would remain intact. The only thing that might change would be the logo on your mortgage statement. You wouldn’t even need to sign a form.

Any mortgage can carry additional restrictions, regardless of lender. It doesn’t matter if you are dealing with a bank, credit union, or monoline lender. This is just one of the reasons why it’s so important to choose the right person to handle your mortgage for you. A quality professional will point out any additional restrictions that might be hidden within your mortgage. You can’t always rely on your mortgage professional to tell you this however, so its best to ask a lot of questions.

 

Let’s now analyze both options and take a look at the pros and cons of each option. Being brokers, we’re of course biased towards brokers, however we’ve built our business by giving people the advice that is best suited to them, even if it means advising them to go directly to their bank. We believe in building trust with our clients, and becoming their trusted mortgage advisor for life. This is what has lead us to Chilliwack’s favourite mortgage brokers

 

Pros of Using a Mortgage Broker

• More options
• Unbiased advice
• Convenience
• Free service
• Ease of access
• Lower rates
• Licensed

 

More Options
Mortgage brokers deal with many different mortgage lenders, and can find the one best suited to your specific needs and goals. If your situation is unique, then you may be limited to only one or two lenders. A mortgage broker would be able to find the lender best suited for your situation. When dealing with a bank, they can only talk to you about their own rates and products. A mortgage broker can talk to you about the products from many different mortgage lenders.

 

Unbiased Advice
What I’m referring to here is the access to many different lenders. The mortgage specialist at a bank can only speak to you about that bank’s products, therefore they would be biased towards them. Bias can exist anywhere however. Some mortgage brokers may try to push to towards the products that pay them the most money. Bank mortgage specialists are also incentivized to sell certain products that make the bank more money, so this can happen on both sides. A quality broker (or bank specialist for that matter), will ensure that you have all the facts, and will suggest the mortgage that is best suited for you, not for them. For any brokers who may be reading this, I cannot stress the importance of advising your clients based on their best interests enough.

 

Convenience
When using a mortgage broker, the entire process can be completed without ever having to leave your couch. Everything can be done 100% by phone, email, and online. Some banks are starting to offer this service as well, however most banks will still ask you to come into one of their branches to discuss your mortgage face to face. This saves valuable time, leaving you more hours in the day to spend as you wish.

 

Free Service
There is no additional charge for using a mortgage broker, as we get paid a finders fee from the lender. This applies to qualified borrowers with solid income and credit. For more challenging situations where you’ll only qualify through a private lender, then the broker will need to charge a fee. Private lenders do not pay the broker anything, therefore we need to charge for our service. For qualified borrowers, there are no fees at all.

 

Ease of Access
Mortgage brokers do not have any set schedule. It’s not uncommon for them to be working evenings and weekends. There isn’t a single day of the year where we’re doing no work at all. We’re always monitoring our email constantly, 365 days a year, even while on vacation. We’re never fully on vacation, and can always be reached if necessary. Most banks have introduced their own mobile sales force, which would be similar to brokers from this standpoint. Availability would still be based more on the individual however, so always a good idea to discuss this with them. If you go into your bank looking for a mortgage, then it’s likely that you’ll be tied to bank hours.

 

Lower Mortgage Rates
As mortgage brokers have many options for their clients, mortgage lenders are always competing for our business. Each lender is trying to outdo the other in attempt to get a larger share of a broker’s business. A broker’s business meaning YOUR business. Mortgage rate is one of the most important factors in choosing a lender, and they are aware of this. For this reason, mortgage brokers will often have lower rates than what you can get from your bank. Sometimes much lower. A broker may even be able to get you a lower rate from your own bank than what they would offer you if you walked into the branch directly.

Just to clarify, mortgage brokers ‘often’ have lower rates, but this is not always the case. There are some situations where a bank may have a smoking hot promo that we are unable to compete with. Going with a broker does not guarantee you a lower rate. But there is a much better chance that you’ll get one by dealing with a broker. Every situation can be a bit different however.

 

Licensed
Mortgage brokers are required to hold a valid mortgage license where as bank mortgage specialists have no such requirements. The bank could hire someone new into the industry and legally call them a mortgage specialist from day one. In Ontario, brokers are required to re-license every two years to ensure they are up to date on the latest rules and regulations. This doesn’t automatically mean that brokers are better than mortgage specialists. There are some talented bank mortgage specialists who are experienced and career focused.

Bank or broker, always ask about their experience level before choosing to work with them. There are some pretty bad brokers out there, just as there are some pretty bad mortgage specialists at the banks. If you don’t know anything about the person you’re dealing with, then it’s best to ask them questions about their experience level before choosing to work with them. I would also suggest Googling them, as well as checking out their profile on Linkedin. This will tell you how long they’ve been in the industry, as well as their current role.

 

Cons of Using a Mortgage Broker

• No access to certain lenders
• Limited to no product availability outside mortgages
• No other point of contact
• Inconvenient location

 

No Access To Certain Lenders
While brokers have access to many different mortgage lenders, there are some who we do not have access to. RBC, BMO and CIBC do not have mortgage broker channels, which means that we do not have direct access to them. If looking to work with one of these lenders, you would need to speak with them directly without the use of a broker.

 

Limited Product Availability Outside of Mortgages
There are some products that mortgage brokers would not be able to help you with. For example, if you already have a mortgage and are looking to add a HELOC (Home Equity Line of Credit), then a mortgage broker would only be able to help you out with advice as we rarely have access to these products. A good broker can always point you in the right direction however. We also do not have access to personal lines of credit, car loans, student loans, or anything else other than mortgages.

 

No Other Point of Contact
If you have trouble getting in touch with your broker, then you may not have any other options and are at the mercy of your broker. IF that broker were to stop returning your calls, then there may not be anyone else you can turn to about your file. You should never run into this situation with any decent broker, however this element of risk is always there. Bank mortgage specialists can disappear as well, however there would always be someone else at the branch that you could speak to if needed. It’s possible that they could still tell you to wait for the specialist to return, depending on how far along they are with your file.

 

Inconvenient Location
Where banks have locations on every street corner, broker offices are more sparse. In today’s day and age with everything being done by phone, email and online, this is less of an issue. But if you’re the type that prefer to do all interaction face to face, then this can create an inconvenience if the brokers location is not nearby.

While mortgage brokers deal with some of the major banks, there are many lenders they deal with that you have never heard of. Just because you have not heard of a specific lender, doesn’t automatically make them a bad choice. These lenders do not spend millions on advertising, nor to they spend money putting branches on every corner. They rely solely on mortgage brokers for their business so you may not have heard the names. Some of these lenders are large institutions. MCAP and First National are two of the largest non-bank mortgage lenders in Canada, both with well over $100 billion in assets under administration.

 

 

Pros to Dealing With The Bank Directly

• Brand name recognition
• Branches with convenient access
• View all your accounts on the same page
• Access to additional products

 

Brand Name Recognition
One of the biggest reasons why people like to deal with a bank is because they’ve heard of them. They spend millions on advertising and have branches on every street corner. You’d be hard pressed to go through a single day without being exposed to the logos from one of the big banks. The familiarity can create a sense of security for many.

 

Branches with convenient Access
As banks have branches on seemingly every street corner across the country, there is always a branch you can walk into to discuss your mortgage options. Vacationing in Whistler and have the urge to discuss your mortgage while barrelling down the slopes? I wouldn’t be surprised if there was an RBC that you could ski right up to. Banks are everywhere.

 

View All Your Accounts On One Page
If you have other accounts with the same bank, then you can view all your accounts on the same page through online banking… including your mortgage. Chequing, savings, RRSP and mortgage… altogether in one convenient location. If choosing a different lender for your mortgage, you’d of course have to go to another web portal to access the details of your mortgage. While this may sound ridiculous to many, there are also many who like to have the luxury of having everything together, even if it means paying thousands more in the form of a higher mortgage rate.

 

Access To Additional Products
As banks deal in other financial products as well, you can also speak to them about RRSPs, TFSAs, credit cards, car loans, investments, etc. Just make sure that your mortgage specialist is truly that. A specialist in mortgages, and not a jack-of-all-trades. I believe you can be ‘okay’ at many things, but you can only do one thing really well.

 

Cons to Dealing With A Bank
• Higher rates
• Limited product availability
• Biased advice
• Higher penalties
• Limited branch hours
• Unlicensed staff

 

Higher Rates
Banks will often (not always) have higher rates than what you would find through a broker. As mentioned above, there are some who will want to deal with a major bank no matter what. They don’t care if there are lower rates elsewhere. They want a bank to lend them the money, regardless of the cost. Banks know this, and are aware that there are many who will pay more to deal with them. They also have a tendency to think they are ‘better’, and therefore can charge a premium. There are some situations where banks can be more competitive than brokers, so this does not always apply, but it’s rare for a big 5 bank who is leading the industry with the lowest rate. Again, every situation can be a bit different.

 

Limited Product Availability
If a bank will not approve your mortgage, then they have limited to no other options for you, as they can only sell you the products that they offer. A mortgage broker has access to many different lenders, and can find one that might be much more understanding towards your specific situation.

 

Biased Advice
While bias can exist on both sides as explained above, it’s easier to be biased when you have no other options to present. If a bank has additional restrictions associated with all their products, then they likely won’t mention them, or just glaze over them if they do. Banks can only sell their products, and since they don’t have any other lender options to sell, you may not be getting the full picture on their products.

 

Higher Penalties
The penalty to break a fixed rate mortgage with a major bank can be as much as 900% higher than most of the non-bank lenders. I’d be willing to bet that there is not a single instance of a mortgage specialist at a bank voluntarily telling a client that banks have harsher formulas for calculating their break penalties than other lenders. They are business like any other, so they naturally want to sell their products. This doesn’t mean that you wouldn’t ever pay a high penalty with a non-bank lender. In situations where fixed rates have dropped substantially lower than your current fixed rate, then any lender can carry a high break penalty on fixed rate mortgages. The penalties with the banks will still generally be higher in these cases. It’s during times of stable rates where the bank penalties can become substantially higher.

That being said, some major banks may only charge you a three months interest penalty if breaking a fixed rate mortgage within the first six months to a year. In these cases, breaking a fixed rate with a major bank can carry a much lower penalty than you would have if you went with a non-bank lender. People rarely break their mortgages within the first year, but it can happen. As I always say, every situation can be a bit different.

 

Limited Branch Hours
In most cases, you’ll be limited to the hours of the branch. While some banks now have mobile staff that may be available at any time, most mortgage transactions are done through the branch, which limits you to when you can access them.

 

Unlicensed Staff
While mortgage brokers need to hold a valid mortgage license, there are no such requirements when dealing with the mortgage specialist at a bank.

 

 

Good Mortgage Professionals vs. Bad Mortgage Professionals

There is good and bad in every profession, and brokers are no exception. Just as there are bad brokers, there are also bad mortgage specialists working at the banks. The question is, how can you tell good from bad?

Just because a broker is licensed doesn’t alone make them a better choice.

Just because a mortgage specialist works for one of the major banks does not mean that are good at what they do.

Some things to consider before choosing a mortgage professional:

How much experience do they have?
Do they have online reviews? (if they are a broker)
Do they have your best interests in mind?
Does what they are telling you make sense?
Are they truly a mortgage professional? Or are they just an order taker?

Do a Google search of their name, and check out their Linkedin profile to see how much experience they have. You could be taking advice from someone who has only worked in mortgages for a few days for all you know.

 

Conclusion

Even if you choose to work with your bank directly, mortgage brokers create competition among all mortgage lenders, bringing rates down for everyone. A mortgage is one of the largest financial decisions you will ever make. You could have a great experience with your mortgage, or it could be a nightmare. You have a lot of money at stake. If any issues arise along the way, you’ll want to ensure you’re working with someone who is competent and will be there for you when you need them. There is nothing worse than dealing with a mortgage professional who has gone radio silent the week before your new home purchase closes. Choosing the right mortgage professional is one of the most important decisions in the home buying process.