Choosing a mortgage lender can seem a bit intimidating. After all, the lender is going to decide whether or not you'll be able to borrow a large chunk of money. There is, however, a lot of power in being the consumer and deciding where you get your mortgage. The lenders want your business, and you should pay close attention to what lenders are offering in order to get it.
We’ve all heard the debate about using a mortgage broker versus going directly to a lender
: brokers can get you the best deals, while going directly to lenders is more easily accessible. But what about the discussions when it comes to the lenders themselves? All things being equal, how do you choose who to lend you the most money you’ll (hopefully) ever need? And are all things even equal?
Are you brand specific?
Brand loyalty is a big deal for companies. They want you to come to them for all of your needs, in this case, financial institutions want you to go to them for everything from your savings accounts to your investment accounts to your personal loans to your mortgage. And when it comes to your finances, there is an ease-of-use component, where you can transfer money easily between accounts and access them all online, in one place.
There’s also the branding. You’re probably already familiar with the colours, the advertisements on television, the logos, and the slogans. Maybe you’ve walked into a branch location and seen an advertisement for a particular mortgage, which is how you even know that they offer a mortgage in the first place! You know the brand, you like the brand, why not get a mortgage with the brand?
When you’re getting a mortgage, question this brand loyalty. Everyone obviously wants their lives to be easier and more streamlined, but is there a cost to doing that? One of the biggest mistakes that people make when getting a mortgage is that assuming that, because they have other products and types of accounts with one particular institution, that they will get the best possible mortgage from that same place, and that’s not the case. If anything, you can be limited by that brand. If you are set on getting a mortgage from a specific location, then you’re limited by the specific products that they offer, as opposed to looking around for a product that best suits you.
Depending on what you want and the strength of your mortgage application, then you may end up with a well-known brand after all. But don’t let familiarity alone sway you one way or the other. Look at choosing a lender based on the products that they offer, as opposed to simply focusing on the name of the lender.
What kind of mortgage do you want?
Rather than starting with the lenders whose names you know, it’s better to start the process of choosing a lender by focusing on your goals, and then determining what product will help you achieve them. For example, if you know that you want to get into the housing market now, but plan on moving within a few years, then it doesn’t really sense to look at rates for terms that are five years or longer. Sure, one company may offer the best five-year fixed rate in the market, but that shouldn’t make any difference to you since that’s not the kind of mortgage you want.
“It becomes a matter of, okay, what are you trying to do? Because then we know it’s not a preference for brand, it’s about finding the right solution,” says Ben Sammut, a mortgage broker with Mortgage Architects. “It comes down to, do you need a line of credit, are you looking for fixed or variable, are you rate sensitive or ease of use sensitive? What are your priorities?”
Once you set your goals, then you can figure out what mortgage will get you closer to those goals, and go with whatever lender offers the most attractive terms for that particular mortgage product.
Plenty of fish in the sea
A lot of people are brand loyal, but not necessarily because they love the so-called “Big Five” – the biggest banks in Canada: Royal Bank of Canada (RBC), Bank of Montreal (BMO), the Bank of Nova Scotia (Scotiabank), Toronto-Dominion (TD), and the Canadian Imperial Bank of Commerce (CIBC) – but because they don’t know that there are so many other lenders out there. There are more than 60 lenders who deal in mortgages, and many of them aren’t banks.
These lenders include those known in the industry as monoline lenders. Monolines deal solely with mortgage and mortgage-related business .Monolines don’t have storefronts, they usually don’t advertise – or if they do, certainly not to the same scale as the big banks – and their business models are usually fairly simple, with low overhead costs. Even after learning about monoline lenders, many consumers are surprised to realize that monolines aren’t fledgling companies who are going to go under at any minute.
“The majority of monolines are funded by, and sometimes sponsored by, the Big Five,” Sammut says. “So really, they’re just subsidiary arms, and I think that is really not common knowledge unless you’re in the industry.”
Credit unions are another kind of lender that may fly under the radar when it comes to offering mortgages unless you’re already a member of one.
You might get a great mortgage offer from a non-bank lender, but still lean toward getting a mortgage with one of the Big Five. It’s understandable that you’d want go with the devil you know, but when it comes to a mortgage, the terms and the rate are the most important factors. Sammut understands being wary of a non-bank lender.
“To some people it seems kind of like an off-brand mortgage,” he says. But the money is no different, and the payments will come out of your bank account the same way. The difference really comes down to the penalties incurred on a particular mortgage product for paying more toward your mortgage than outlined in the agreement, breaking the mortgage contract before the end of the specified term, and the interest rate offered.
Go beyond the rate
If all things are equal and you can get the same interest rate at multiple banks, then your broker can explain what other differences they might see and you might not. For example, quicker turnaround times.
“If it’s [between] Bank A and Bank B and the products are the exact same, why would I wait a week for a commitment?” Saummt says. That is something that you wouldn’t know as a borrower, especially a borrower who hasn’t dealt with a particular institution before. “We sort of show them from our experience what their experience would look like,” he adds.
After comparing the mortgage products themselves, the only incentive to go to one lender over another is to enhance the experience of getting with your mortgage and ease of dealing with them for years to come. This is where recommendations from other people may come in handy when it comes to customer service. Because while a brand name might mean less than you think, brand experience is a different thing altogether. Some brands, Sammut says, have a poor overall client experience, but may fund another lender that is known for its exceptional experience. So it really pays to talk to your broker about their experiences on the back end of the process, and how one lender might make your experience smoother than another.
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