Mortgage Brokers vs. Banks: Which Should You Choose?

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Last updated on June 17, 2022

When shopping for a mortgage in the past, the default option was to go to your local bank branch, but now times have changed. Mortgage brokers have been rising in popularity for years and even more so during the COVID-19 pandemic.

If you’re looking to get a mortgage but you’re new to the world of mortgage brokers, then you probably have some questions. Here, we’ll look at the difference between working with a bank and a mortgage broker, their pros and cons, and when to use one over the other.

Mortgage Brokers vs Banks: At a Glance

 Mortgage BrokerBank
DescriptionMortgage specialist with access to offers from various lenders, earns a commission from the lender at no cost to you.Banking service with multiple financial services, like credit cards, personal banking, mortgages, and loans.
Direct LenderNoYes
ExamplesThe Mortgage Centre, Breezeful, True North Mortgage, CanWiseBMO, RBC, TD, Scotiabank, CIBC, Tangerine
Home loan optionsMany different options and interest rates from various lenders to choose from.Can only offer their own mortgage products.
Interest ratesWill likely offer competitive rates by comparing offers from multiple lenders.Won't necessarily offer competitive rates or discounts.
How to applyApply entirely online with some online mortgage brokers in just a few minutes.Fill out documents and apply in-person at the bank.
ProsSave time by comparing lenders in one place, better discounts on interest rates, no added cost for the service.Established banking relationship makes you feel more comfortable, consolidate banking services for a dicount.
ConsBrokers might not work with all lenders, no established relationship.Time consuming to research options, not as much choice in lenders, need to negotiate.

What’s the Difference Between Working with the Bank and a Mortgage Broker?

While banks act as individual mortgage lenders, a mortgage broker has access to multiple lenders that can provide different mortgage options. If you get your mortgage through a bank, you’ll really have to do your homework, know the right questions to ask, and also spend hours shopping around. Most people don’t want to do that, which is why they opt for getting their mortgage from a broker.

A mortgage broker is a licensed professional that has relationships with dozens of mortgage lenders. Mortgage brokers are fully independent and can suggest the mortgage options that are best suited for you. This helps you make an informed decision and provides you with peace of mind.

Pros & Cons of Using a Mortgage Broker

Pros

  • Save Time and Money: A good mortgage broker will ask you questions and recommend the best options. They’ll do all the hard work, so you don’t have to.
  • Low Rates: Brokers have access to lenders offering low, and sometimes exclusive, rates.
  • Unbiased Advice: Brokers receive roughly the same commission for connecting you with a lender, making them truly impartial.
  • No Cost: If you have decent credit, you typically don’t pay anything for a broker’s services.
  • More Choice: Brokers work with everyone from banks to monoline lenders with better rates, prepayment privileges and fairer mortgage penalties.
  • Digital: Some brokers are entirely digital and you can securely upload documents and track your mortgage online.
  • Customer Service: Brokers almost always offer better and faster customer service, including outside the usual “9 to 5” business hours and even 24/7.

Cons

  • A New Experience: If you haven’t worked with a broker before, you might be hesitant to trust them to handle such a big financial decision.
  • Broker Discrimination: Not all lenders work with brokers. If you want to borrow from that specific lender, you’ll have to reach out to the lender on your own.
  • Limited Discounts: While this isn’t always the case, since brokers already offer preferred rates, you’re less likely to be able to haggle on the cost.
  • Going Through the Middle-man: It isn’t necessarily a bad thing to have a middle-man between you and the lender, but if you prefer to interact directly with the company responsible for providing you a mortgage, then a broker might not be for you.

Reasons to Get Your Mortgage Through a Mortgage Broker

Work With a Mortgage Broker For Better Rates

ImageSource: Shutterstock

A big reason to use a mortgage broker is to save on mortgage interest. As of this writing, RBC is advertising a posted rate of 4.79% on a 5-year fixed-rate mortgage. That’s right, 4.79%! Say you’re gifted at the art of negotiation and land yourself RBC’s special rate of 2.17%. That seems a lot better, right? Not quite.

With a quick search with the online broker Breezeful, I was able to find a 5-year fixed-rate mortgage for 1.39%. Assuming a mortgage balance of $500,000 amortized over 25 years, you’d save over $11,000 in interest over a 5-year term with the broker. The numbers don’t lie. Aside from the interest rate, sometimes if you’ve been denied a mortgage by a bank, an online broker can be a viable solution.

Pros & Cons of Using a Bank

Pros

  • Brand Recognition: We’re already familiar with banks and we know what to expect when dealing with them.
  • Perks: Banks have deep pockets and can offer extra perks like covering your appraisal fee or waiving your banking fees.
  • Existing relationship: If you have an existing relationship with your bank and you’ve been relying on them for years, chances are you already have a friendly rapport with one or more of the bankers. This can help you feel more at ease, trusting, and might come in handy when trying to secure a lower rate.
  • Stability: Canadian banks are among the safest and most stable in the world, so you won’t have to worry about anything.

Cons

  • Less Choice: Banks will only offer their own mortgage products, they won’t encourage you to shop around for something better.
  • Time-consuming: Not only do you need to conduct your own research, but when you’re ready to apply, you’ll likely need to go in person during limited business hours.
  • Damage Your Credit: Credit bureaus sometimes lump multiple mortgage-related credit checks in together as one inquiry, but other times they won’t. If it’s the latter, shopping around for a mortgage at the banks could hurt your credit score.
  • Haggling: The bank won’t offer you its best rate right away, so you’ll have to shop around, compare rates, and be ready to negotiate.
  • Generalists: Your bank’s financial advisor isn’t a specialized mortgage consultant. Mortgages are only one of the several products (think mutual funds, RRSP, TFSA) that they need to sell.
  • Mortgage Penalties: Banks are notorious for their mortgage penalties. Covered often in the press, the latest poor soul was charged a $30,000 penalty for selling due to the pandemic.

Reasons to Get Your Mortgage Through a Bank

Saving on your mortgage interest rate isn’t the only factor in choosing where to get a mortgage. There are other advantages to going with your bank that you won’t get with a mortgage broker.

Banks can offer you a discount for consolidating multiple services. You might not get as steep a discount on your interest rate as you would with a broker, but if you get discounts on other banking fees then it can still pay off to work with your bank.

Not only that, but many people prefer the peace of mind of having all their finances under one roof. If you get your mortgage at your bank where you already have an account, line of credit, loans, and credit cards, then it’s easier for a banker or adviser to see your overall financial health and offer perks or discounts accordingly. It will also mean fewer documents to gather the next time you sit down for your annual meeting with your banking representative.

If finding a low interest rate is your foremost concern, getting a mortgage with a virtual bank can be a nice middle ground between going to a traditional bank and working with a mortgage broker. These online-only banks, like Tangerine Mortgage, typically have much lower rates than brick-and-mortar banks while still offering a relatively wide range of products.

Mortgage Brokers vs. Banks: Which One to Go With?

As mentioned, not all lenders deal with mortgage brokers. It’s unfortunate that some lenders have chosen not to work with mortgage brokers for whatever reason. These lenders aren’t willing to pay a finder’s fee to the broker, and since most brokers don’t receive salaries, if a broker doesn’t get paid commission from the lender, they won’t present the option to you. This can mean that you’re not seeing some good options from lenders your broker doesn’t have an existing partnership with. But on the other hand, your broker likely has solid relationships with the lenders they regularly work with, which can help you in getting a lower rate.

If you’re willing to spend hours researching various mortgage options and you believe you have a good understanding of different rates and mortgages, then you might choose to get a mortgage with the bank. Otherwise, in most cases, you’re almost always better off working with mortgage brokers for preferred rates, more options, and to save time that would otherwise be spent researching. Not only that, but a broker’s services don’t cost you anything, so you have nothing to lose.

Final Word

Taking on a mortgage from a broker or a bank can have its advantages and disadvantages. Knowing these facts, you can choose the option that makes the most sense for you.

If you decide that working with a broker is right for you, here are 10 questions to ask your mortgage broker to get the most out of your mortgage.

Like most Canadians, I was going to take out a mortgage at my local bank branch when a friend recommended that I reach out to a mortgage broker. I’m so glad that I did in the end since the broker educated me about mortgages and helped me choose an option that saved me a ton on interest fees.

FAQ

Mortgage brokers usually only have to request your credit report once or twice to secure rates from multiple lenders. If you shop around at multiple banks, the multiple credit checks can hurt your credit score.
Banks use the posted rates to calculate the penalties for breaking out of your mortgage before the end of the term. This can result in some pretty hefty fees. Sadly, some people also accept the posted rate at face value. Shop around so you can make an informed decision and secure a fair rate.
Mortgage brokers have relationships with dozens of lenders and are much more likely to find one with mortgage qualification criteria that suits the needs of a small business owner. A broker may also be able to find a lender that doesn’t require as much paperwork up front.

Author Bio

Sean Cooper
Sean Cooper bought his first house when he was just 27 and paid off his mortgage in only three years. An in-demand personal finance journalist, money coach and speaker, his articles have been featured in publications such as the Toronto Star, Globe and Mail, MoneySense and Tangerine’s Forward Thinking blog. He makes regular appearances on national radio and television shows to discuss personal finance, real estate and mortgages, and is also the bestselling author of the book, Burn Your Mortgage. Follow him on Twitter @BurnYrMortgage and request his services on his website.

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