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Banks vs Mortgage Brokers

Banks have been the first choice for mortgage shoppers for decades, and not without reason. With the total value of all mortgages in Canada at $1.38 trillion, there is the perception that only banks have enough money to fund it all.

However, this isn’t the case. The growing mortgage market has also allowed smaller mortgage companies to come into the spotlight, especially as banks are tightening their lending criteria. Mortgage brokers are individuals that work with customers to find the lowest rates for them by negotiating on their behalf to lenders.

Bank

Mortgage Broker

Description

·       A chartered bank that offers banking services like personal and business bank accounts, credit cards, and loans in addition to mortgages

·       A FSCO-licensed individual who makes deals with lenders to get a mortgage for their client

Are they a lender?

·       Yes

·       No

Will they help with the application?

·       Yes

·       Yes

Advantages

·       High levels of stability and consumer trust

·       Ability to consolidate all your loans and accounts at one institution

·       Most likely have already established a personal relationship with you

·       Can offer products from a variety of different lenders

·       Are a free service for you, as they are paid by the lenders

·       May be willing to work with those with bad credit

Disadvantages

·       Only offer products from their own institution

·       Have extremely strict lending criteria

·       Rates are typically higher

·       Doesn’t have the trustworthy reputation an established institution has

·       Can’t help with anything other than mortgages

Mortgage brokers are becoming more popular than ever. A 2017 CMHC study shows that the market share for brokers has increased from 26% in 2016 to 35% in 2017. This is happening at the same time that it’s becoming harder to qualify for a mortgage from a bank, so the trend is likely to continue.

 

How Brokers Find Mortgages

Since a broker is not a lender, they have to find someone to loan their customers money. They might even show you rates from your current banking institution, although that’s unlikely. That’s because the best rates usually come from monoline lenders - lending companies that specialize only in mortgages.

When brokers work with banks, you may get a better rate than you would have gotten if you tried negotiating. Remember, mortgage brokers are professionals who have years of experience in the mortgage industry, and are more likely to be able to get better deals.

While a broker is not directly responsible for your loan once you start repaying the lender, you’re still able to reach out to your broker if you have any questions, especially at renewal time.

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