Expert Series: Should you get your mortgage from a bank or mortgage broker?
You’ve bought a home—perhaps your first—and with the mounting costs of homeownership, you’re probably looking to find the best possible deal on your mortgage.
Now the question is, should you go with a mortgage broker or a big bank?
For a truly unbiased answer, we sat down with Ho Tek, one of two partners at Domus Student Housing in Waterloo. With over a decade of experience in the real estate industry working with both brokers and banks, Ho puts it simply—“There’s value in knowledge; if you know more you’re better equipped to get a good deal. It’s just about getting the best deal for your specific situation.”
Bank or Mortgage Broker – How do they work?
A mortgage broker acts as a middleman between you and perhaps hundreds of different lenders, many of whom you have likely never heard of. They will work with you to understand your unique situation and goals, then go out and shop around for the best rate. After negotiating on your behalf, they make a commission from the lender once a deal has been signed.
A broker has a lot of flexibility because they have access to so many different lenders. This works well if you have unique circumstances like being self-employed, owning several properties, or even having poor credit. An experienced broker will know how to “package” your situation in a favourable way to lenders which can help you secure financing that you may have been denied of at a bank.
On the other hand, a bank is a well-established single lender. You’ll meet with a loan or mortgage officer who connects you with one of their own in-house products, and it’s your job to negotiate. Similar to a broker, your loan officer will help you find the best fit for your financing needs. They are paid their commission by the bank.
Negotiating with the bank can be mutually beneficial because they are all about relationship-building. You can often negotiate a lower rate based on your longstanding relationship or have extras thrown in like an upgrade on your credit or a home equity line of credit. “It’s their job to foster that relationship.”
Is one a better choice than the other?
Although there are pros and cons to both, Ho feels that the decision is really situational.
Ho points out that the bank is a great place to start, even if you just use that rate as a benchmark as you shop around with other banks or brokers. “As a general rule, banks are safer”. With a name, a face, and brick-and-mortar facility, they offer peace of mind that can be missing with brokers. “If you are the ideal borrower with a good credit score and have a good relationship with your bank, there’s no reason not to go to them first. If you’re not happy with what you’re offering then you can shop around. But don’t just assume that the grass is greener”.
If your situation is more complex or you’ve been denied at the bank, a mortgage broker may be able to secure the financing you need. They don’t have the same rigid criteria for who they lend to and that flexibility can be key for special or higher risk circumstances.
A third option: Your friendly neighbourhood credit union
Ho also gave us a third option, squashing the old myth that credit unions are “small” or “shady” and pointing out that, “Credit unions feel more organic, and some people really value that”.
We learned from Ho that as an interesting hybrid of a bank and broker, credit unions have become a great lending network. Similar in structure to a mutual company, they exist to serve their members rather than make a profit. “They may be able to offer you a competitive rate and great service, so include them as you shop around for the best deal.”