With interest rates on the rise, homeowners and home buyers need to seriously consider how to get the best mortgage rate in Canada. The Bank of Canada has already raised interest five times since July 2017, which means that most people who are renewing their mortgage will have higher rates. So who’s going to give you the best mortgage rates – a broker or the bank?

What is a mortgage broker?

In short, a mortgage broker is a person that shops for mortgages on your behalf. They’ll look at your application and go to different banks, credit unions, and monoline lenders for you to get you the best rate.

Mortgage brokers usually don’t charge you anything; most make their money on commission. The lender that you decide to get a mortgage from pays the broker a percentage of their profits for referring you to them.

Are brokers licensed?

Yes! Brokers are regulated by the Financial Services Commission of Ontario and need to be fully licensed before brokering mortgages. Each broker and brokerage will have a license number that you can look up to see if they are actually licensed to deal with mortgages. (our license number is 12733 – take a look if you want!)

So who works at the bank?

Banks employ mortgage specialists, rather than mortgage brokers. Mortgage specialists work for the bank and are usually salaried, earning a bonus for every mortgage they deal.

A mortgage specialist will only try to sell you that bank’s mortgages. They also won’t tell you if you can get a better rate at a different lender – they’re working for the bank, after all.

What does a mortgage broker offer?

As the name implies, mortgage brokers offer mortgages. They don’t fund the deals themselves, but rather connect you with a lender that will fund you.

The reason that brokers exist is that lenders don’t have the time or resources to look at every application for a mortgage themselves. Canadians collectively have over $1 trillion in mortgage debt alone – there are too many mortgages for any one business to fund, let alone keep track of.

Mortgage brokers find the applicants that a lender would want, whether they have good credit, bad credit, are self-employed, or are a first-time homebuyer, and get paid a portion of the lender’s profits for finding the borrower for them.

That means that you can use a broker for free!

Pros of brokers

·        Can shop multiple lenders with just one credit check and application

·        Can get better rates than offered to customers by the banks

·        Knowledgeable in many different lenders’ products

·        Don’t charge the borrower a fee for service

Pros of mortgage specialists

·        May already have a relationship with the customer

·        Knowledgeable of a customers’ bank’s products

·        Don’t charge the borrower a fee to recommend products

Cons of brokers

When you go to the bank to shop for a mortgage, you’re not under the illusion that the bank will impartially offer a variety of services from different financial institutions. They will try and sell you their products. With a mortgage broker, the situation may be different. They will show you offers from multiple lenders, but some of them may have a special relationship with that broker. This could result in the broker pushing one product over another because of an undisclosed prior relationship. The reason they would ally with one or more particular lenders is to earn a larger commission at the end of the process. You won’t know how much the broker will make when you finally decide which mortgage you want, so it can be hard to determine if they have your best interest at heart, or theirs.