MORTGAGE OPTIONS – BROKER VS BANK?

05 March 2016
Neil Bosdet

As Real Estate Professionals, Bosdet Homes is often asked about financing options. Most people automatically go to their own bank to see about obtaining a mortgage. It is great to have a good relationship with your financial institution, however they are only going to be able to give you the rate that they are lending at. If you are planning a trip to China and are looking for rates on flights do you just go to the ticket counter for Air Canada? Or do you contact a Travel Agent to find the best option considering all things like size of plane, flight time, and PRICE!

It is the same with shopping for a mortgage. You are wise to know all your options and make an informed decision. At some point, you will rely on a mortgage professional (either a mortgage lender or mortgage broker) for advice and consultation. So what are the differences between both? And what are the Pros and Cons of each?



Credit Rating:

First a note about credit. Any lenders you apply with will pull a credit bureau rating on you. This is fine, but if it’s done many times it starts to reflect negatively against your credit rating as it’s viewed that you are shopping from lender to lender looking for an approval. Each bank will pull a credit bureau but Mortgage Brokers usually only pull one and use that with each application. This is why we generally suggest talk to your own bank and a Mortgage Broker. This way two credit checks are done which won’t harm your rating and it’s also a good idea to get more than one quote.





Mortgage Broker:

A mortgage broker is a professional who is a freelancing agent. They go between the lenders and the borrowers (that’s you) and are paid a commission from the lenders for securing a good borrower. They don’t work for any one lender, they work for you and have contacts to lots of lenders (think 100’s). Think of them as a recruiter- they seek out people interested in borrowing for a home and fix them up with a lender that will work for them. They can even go between you and the big banks for a mortgage. They work by getting to know you, calculating what you could be approved of, sending your application, and discussing with you what would work for you in terms of fixed or variable mortgage. Many people say they liked their mortgage broker because they can often get a better rate than if they went to the big banks themselves. Some people also say that the mortgage broker helped them get approved even though their credit history wasn’t so hot.



Big Banks:

A loan officer at the big bank is KIND of like a mortgage broker except they just work for one bank. A loan officer can sit down with you and talk to you just like a mortgage broker to see what your best fit is in terms of getting a mortgage. They can negotiate with you for you to get the best deal on a mortgage (e.g. the best fixed rate they have-it is often not the posted rate…if you get the posted rate, then you have been taken, my friend). They get paid by the bank, either through commissions, or salary + commission, or just salary.

So who to choose? Let’s do a pros and cons list so we can decide.



Mortgage Broker Pros:

Many will meet you on your time and even at a location other than their office

You often get a very competitive rate

They may be able to get you approved for more

If your credit score isn’t good, they can usually find a lender who will take you on

You don’t have to negotiate, they will do the negotiating for you

They can sometimes pay for things like appraisals out of their own pocket (they get less of a commission, but they may get more word of mouth advertising, and you may go back to them once your 5 year term is up)



Mortgage Broker Cons:

The lenders that offer good rates are often smaller, with names of institutions that you haven’t heard of which can make some people nervous



Big Bank Loan Officer Pros

You can see them on your time too if you deal with a roaming mortgage specialist (if your bank has one)

They can give you perks within the bank like: free banking, free safety deposit box etc.

They often pay the appraisal fee

Big bank- you know they likely won’t close down

Can have home equity line of credits

There is someone to talk to easily (just walk into the bank or call the loan officer) if you want to do something with your HELOC, or if you want to talk about changing from fixed to variable or vice versa



Big Bank Loan Officer Cons

Unless you deal with a roaming mortgage specialist, you will have to see them on their time (banker hours) and in their office

The big con is that you have to be able to negotiate (unless you get a joy ride out of it like I do) or else you won’t get a good deal

You have to do the shopping around (go to different banks etc.) which can be time consuming and you need to be aware of the credit bureau issue above

Their rates often aren’t better than mortgage broker rates

If your credit score isn’t up to snuff, they might not take you on

You might need to get “supervisor approval” for requests or whatnot

Bosdet Homes advises, whether you decide to purchase a house in the country or a swanky downtown condo, your home will likely be the biggest investment you will make. So, before the keys get handed to you, there is work to do – and that includes securing financing for the most expensive purchase of your life.

When deciding which type of financing is right for you, here are a few details you need to make sure you share with your mortgage broker or the lending institution you decide to work with:







Prepayment

How often will you be able to make additional payments on your mortgage without being assessed a penalty, and how much will you be able to pay?



Frequency of payments

Whether it’s weekly, biweekly, accelerated biweekly or monthly, make sure the lender offers the payment frequency you feel most comfortable with.



Penalties to breaking the mortgage

Make sure that you are fully aware of what the penalty would be should you decide to opt out of your mortgage term.

Whether you decide to use a mortgage broker to help you through the home-buying process or to secure your own financing, it is important that you do your research so that you are happy with your decision. Some banks or lenders might give you the runaround, while a mortgage broker might be able to hold your hand through the entire process, securing a great rate for you. Or vice versa. Don’t be afraid to shop around and ask for references whenever possible.