Who offers the better rate? Mortgage Brokers or Big Banks?
There are many options to get a loan for a house, either a mortgage broker or a big bank, a difference in a rate can cost you thousands of dollars.
As the housing prices are going up and the stress test has been implicated, it has become even harder for some to get mortgages. For many first time home buyers, getting a mortgage from a reputed bank may be the only way they go as they have credibility and authority. However, there has been a rise of mortgage brokers through the country making this decision even harder.
This week’s editorial will focus on a tough decision many have of to make – whether to borrow from a mortgage broker or a bank.
A mortgage broker is a professional freelancing agent. They work as middle men between lenders and the borrowers to secure a suitable mortgage from various lenders and banks. They are not the ones that are giving the loan, simply a person who connects you to a lender.
One of the biggest perks of using a mortgage broker is the option to compare different rates and them having to negotiate for you. You only need one credit check, and brokers have access to lenders that a bank may not have. Moreover, they can provide with more options for people with bad credit as they have access to more loan programs.
There are drawbacks to working with Mortgage brokers as well. The Globe and Mail, “Mortgage seekers wonder: broker or bank?” claims that due to previous rule changes such as tightening lending rules for homes lowering the amortization period down to 25 years for high mortgages, and the process for mortgage approvals based on income have given less negotiation power to brokers – impacting the rate you might get offered. Furthermore, sometimes a mortgage broker may charge higher fees and they may not get you the best deal, as they prefer a lender that pays higher in commission.
Mortgage Professionals Canada’s 2016 Spring Survey showed that only 36% of future homebuyers intended to consult a mortgage broker, while 66% of respondents would consult a bank. A bank will assign you a loan officer who will give you recommendations based on your financial situation, and they are the institutions that will lend you your mortgage.
Some of the advantages of using a big bank are that they offer discounts and you do not have to pay a fee that you would usually to a mortgage broker. They also often pay the appraisal fees or some of the costs. However, the biggest perk might be getting access to home equity line of credit (HELOC). This is form of credit where the bank uses your home as a guaranteed that you’ll pay back the money that was borrowed.The Toronto Star article, “Mortgage brokers vs. banks: the pros and cons” claims that banks also have an advantage as they are an institution that is large enough to withstand periods of financial instability, protecting your mortgage that you borrowed.
The Financial Post has an article, “Read this if you’re considering getting a mortgage from someone other than a big bank” on the disadvantages of using a big bank as a mortgage lender. Due to the implication of the stress test, there has been a ‘huge influx’ of Canadians who fail to qualify for a bank mortgage from a bank. Hence, not being available to some people as an option. Some even say that they offer a higher interest rates on your mortgage, which could mean thousands of dollars less in your pocket. This backed up by the advantage they have with familiarity of your situation and your account.
Overall, there are pros and cons to each type of lender. Rate Hub has a great chart which compares the two side by side. At the end, the recommended action is to shop around starting with big banks and moving to mortgage brokers. There are many brokers that you can also access online without having to go to an actual brick-and-mortar store. Make sure you have the latest competitive rates and to check the fine prints and penalty clauses for them all.