Mortgage options – bank versus broker

It’s an ideal time for first time home buyers to be entering the market. Not only are housing prices down, but interest rates are low, so mortgages are more affordable.

But understanding the basics as well as getting a great deal when it comes to your mortgages can come down to who you choose to work with – a banker or a broker.

“I suggest my clients go and talk to their bank and a couple of mortgage brokers – at least three,” says Norah Higgerty, a Realtor with Coldwell Banker First Choice Realty in Shediak, N.B.

It’s necessary if you want to ensure you get the best possible deal you can, she says. Currently, her clients are choosing brokerages and banks in even stride, but they’re checking out both before they make a decision.

Peter D. Schalin, a ReMax Realtor in Edmonton says he tries to steer his customers away from banks and towards brokers. “I explain to the individual that they will get way better service if they deal with a mortgage broker. Like if they’re flying to Hawaii, they could go to the Air Canada ticket counter or a travel agent. If they go to the ticket counter, they’ll only hear about Air Canada. But if they go to a travel agent, they’ll hear about all the deals and find the best one.”

While Realtors have differing views on who they would recommend to their clients, the decision is ultimately up to the first-time buyer.

Both have their benefits and limitations.

Weighing the benefits: banker
For some first-time buyers, getting their first mortgage through their bank is appealing because people already have a relationship built with the bank and they’ve come to trust them with their financials.

Even if there isn’t a relationship between the client and the bank, first-time buyers may feel more comfortable with a bank, says Joan Dal Bianco, vice-president of real estate secured lending at TD Canada Trust in Toronto.

“What a banker can do is look at the entire financial picture of an individual, both from investments to debts they may have and come up with a financial solution versus just speaking about the mortgage,” she says. “When they’re going to a broker, it’s all about the mortgage.”

Based on her company’s research, Dal Bianco says the primary reason some customers see a broker is that brokers can streamline the process for customers, especially first-time buyers, by doing the research, finding the different offers available in the marketplace and presenting them to you.

In addition, Dal Bianco says there’s a perception that brokers will get customers better rates, but “what the broker is doing is getting market rates from more than one lender to present to the client. They’re really very competitive rates to what a customer could get through a bank but the broker is doing the homework.”

But keep in mind, not all lenders participate in the broker market. Bank of Montreal, for instance, does not.

“The broker is paid by the lender and so is that broker actually shopping the market or are they providing you a mortgage where they get the highest commission?” says John Turner, director of mortgage sales at Bank of Montreal in Toronto.

While it’s important to be sensitive to rates, Turner says you need to consider a product’s features as well.

On the banker or lender side, Turner says it’s important to evaluate the overall banking relationship and not just the mortgage.

He advises first time home buyers to look at the overall value of the financial package you have, including lines of credit, credit cards, bank accounts, safety deposit, as well as the rate on your mortgage. “Generally speaking, if you’re prepared to work with a bank you’ll get a better overall deal versus spreading it around.”

Because the broker market contributes nearly 30 per cent of all mortgages in Canada, many lending institutions work with brokerages, says Dal Bianco, whose company TD Canada Trust offers customers mortgages through independent brokerages. Some Realtors and brokers say this is becoming more common because of the growth in popularity in homebuyers using brokerages to obtain a mortgage.

Weighing the benefits: broker
While banks provide an overall holistic approach to personal finances, that can sometimes work against them, according to mortgage brokers.

“As a mortgage broker, this is all we do. We specialize in mortgages,” says Gerri Vaughan, a broker at Invis in Edmonton. “We don’t do anything else.”

Typically bankers have to know everything, says Vaughan. They’re dealing with mortgages and investments and they don’t specialize in a particular area. So she says they may not be up to date on absolutely all the new policies that are out there.

Because brokers are shopping for mortgage products (Know more about them in our compare home loans page) on the marketplace as opposed to dealing with a limited number of products provided by one bank, they may be better equipped to match an individual customer’s needs with a mortgage product.

“We have more opportunity with our stable of banks, rather than one bank,” says Dave McNabb, mortgage adviser and owner of Regional Mortgage Corporation, a brokerage in Red Deer, Alta., who says about 35 per cent of his business comes from first-time buyers. “When you go to a bank, you have their rules and their policies, but with a broker, we have them all.”

Ensuring you check a broker’s qualifications, experience and relationships with lenders is important. Not all brokers have longstanding relationships with well-known lenders. To be able to best take advantage of what brokers have to offer, you’ll want to find one that does, says McNabb.

Brokers can, in a way, streamline the mortgage shopping process by surveying the marketplace for the best products available, so you don’t have to visit each lender to learn about their products. In addition, with banks, you may have to negotiate your interest rate. And with a mortgage broker, they do that for you, says Vaughan.

Brokers often have access to lenders you may not have thought to consider, says Vaughan. Less-known (non-bank) lenders can sometimes give you better rates or prepayment options. “They just don’t have a bricks-and-mortar building you would go to,” she says.

In the end, choosing who you’re most comfortable with, the features of your product and the rate are what’s most important. It’s not always about the lowest interest rate or the features you may not use. It’s about getting the mortgage product that best fits your needs, and evaluating who you work with based on how well they match what your circumstances are with a mortgage product.

How to find a qualified broker:

  • Watch for accreditation, such as AMP (Accredited Mortgage Professional) status and membership in national organizations such as CAAMP
  • Check with your local Chamber of Commerce
  • Do your research. Find out how long they’ve been in the business and what lenders they have built relationships with
  • Check a broker’s references, including bank references
  • Talk to family and friends about their experiences with brokers
  • Look at their awards/industry recognition history

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