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The pros and cons of using a mortgage broker and going to a bank directly.
Choosing a mortgage broker or a bank for your home loan will likely influence which mortgage you end up with. On top of that, there are pluses and minuses to both, as we detail in the table below. Before we dive into which may best suit your financial situation, let’s look at the differences between mortgage brokers and banks.
| Features | Mortgage brokers | Banks |
|---|---|---|
| Mortgages | Can show you a range of mortgages, but know that not all lenders go through brokers | Limited to its own mortgages |
| Communication | Represents your interests during the application process with lenders | You deal with the lender directly |
| Fees | Brokers sometimes charge a client fee | No broker fees |
| Approval process | A good broker can look for mortgages based on your income and credit score, so the lender is more likely to approve your mortgage | Large banks can be picky when deciding whether to lend to you |
The decision is really up to you. But we go more in depth on the differences here.
Mortgage brokers—also known as advisors or intermediaries—compare mortgages available from a range of Canadian lenders. Some brokers are very effective in matching you up with the right mortgage, which generally means having a competitive rate and quality service from a lender. Good service means processing your mortgage application quickly, good communication, and more.
Brokers should keep up to date on the best mortgage rates and the types of mortgages available from banks and other lenders, as they are competing on price and the types of applicants they approve. For example, some mortgage lenders are more open to lending to self-employed people, newcomers to Canada and others with limited credit histories. Meanwhile B lenders (who, unlike A lenders, work with Canadians not able to be approved for a prime mortgage), private and non-bank lenders are more open to lending to those with less than perfect credit scores. You will typically pay a premium mortgage rate if you’re considered risky with the potential to not pay your mortgage.
You can find a broker that doesn’t charge a fee. Of course, they’re not doing it for free. They are paid on commission from the mortgage lender. It’s typically around 1% of the value of the mortgage. Brokers are more likely to charge you a fee if you don’t qualify for a mortgage with an A lender and they need to place you with an alternative lender. In that case, the broker is paid about 0.5% to 2% by the borrower (you, if you go that route).
If you take out a mortgage from your bank, you may be able to get preferential rates, while they could be more open to lending to you if you have history with them. Being loyal can cost you, however, as a number of lenders offer a generous cash back reward when you switch to them, regardless of which channel you’re using.
A mortgage broker can liaise with different lenders on your behalf. But they don’t have access to all rates from all lenders across Canada. In fact, not every lender accepts business from brokers, including two of the largest six Canadian lenders, RBC and CIBC.
If you’re considering getting a mortgage from a bank, know that many Canadians do. It can be because of familiarity (their savings and investments are at the bank already), reputation (Canada’s banks are trusted worldwide) and service (brick-and-mortars are visible in communities). Go with a bank and you will be limited to their range of mortgages.
If you have a strong credit score and solid, reliable income, a bank may grant you a mortgage with a competitive rate. If you have any credit issues or irregular income you may have to use a smaller bank, which could charge you a higher interest rate.
There are six major banks in Canada and they all offer mortgages: Toronto-Dominion (TD), Bank of Nova Scotia (Scotiabank), Bank of Montreal (BMO), Royal Bank of Canada (RBC), the Canadian Imperial Bank of Commerce (CIBC) and National Bank of Canada. They differ from smaller players in that they tend to only lend to low-risk borrowers.
The upside is they tend to have branches, so you can speak with a human relatively easily.
Non-bank lenders are financial institutions that offer mortgages but none of the other financial products that banks do, like everyday banking. Essentially they specialize in mortgages. One of Canada’s largest non-bank mortgage lenders is First National.
These types of lenders offer home loans such as subprime mortgages for the credit impaired. It’s not unusual for non-bank lenders to have separate divisions for prime customers and for sub-prime customers. For example, MCAP offers mortgages for those with strong credit, but also services loans for a sub-prime division called Eclipse, so it effectively operates as both an A and B lender.
Some subprime mortgages have relatively short terms, like one to three years. Typically the borrower will refinance onto a more prime mortgage product later.
You can use mortgage comparison websites, like Ratehub.ca, to check mortgage rates. (Ratehub.ca and MoneySense.ca are both owned by Ratehub Inc.) You can also check out how much mortgage you can afford with a mortgage affordability calculator. Also, check your credit rating to get a sense of how the lender (bank or otherwise) may determine their risk of lending to you.
If you go with a bank you can apply directly. Some banks offer existing clients preferential rates. Ask, as you comparison shop.
For most Canadians, using a broker is the wisest choice to save money, as they have access to a wider selection of products and should have more experience in going through the application process than you do.
However, not all brokers are made the same. Some specialize in mainstream lenders, others are more familiar with getting you a mortgage if you have impaired credit, while others tend to source mortgages for investment properties. Again, ask around, search online. Look at reviews and get referrals if you can.
Before signing your mortgage contract it’s worth reading the fine print, to make sure everything’s above board. Are you getting the interest rate you signed up for? What about the cost of any lender fees, like an arrangement or booking fee?
One important aspect is your “prepayment privilege,” which means how much you’re able to overpay your mortgage every month, shortening the time it takes to pay off the loan. It’s good to know where you stand, because by paying too much you can be charged a prepayment penalty, which makes paying it off faster not worth it.
Buyers should view a survey of the property before signing the contract, as this can reveal if there are any issues with the home they’d need to deal with, and could even justify a renegotiation on the price. Surveys reveal the boundary of the home, so you have an idea of where you’re allowed to build on. In Canada most sellers take out the survey, known as real property reports (RPRs), and they should be scrutinized before you sign on the dotted line.
If you’re buying a condominium—often the most affordable option in cities—you’ll want to review documents on how it’s run. Generally you join a condominium corporation where you have to pay fees which are used to manage common areas of the building, so it’s a good idea to know what you’re getting into.
In the contract you should make sure any verbal agreements are in writing. For example if the seller informally agreed to leave some furniture as part of the purchase it’s best to make this official, just in case you get a nasty surprise when you move in.
When getting a mortgage it’s important to make sure you don’t overburden yourself and have a backup plan if something goes wrong. Like, could you afford to repair a major leak if that happened? Do you have a plan of action on how you’ll be able to repay the mortgage if you lost your job? In some cases the latter issue can be mitigated by either taking out insurance, or using a guarantor when applying for a mortgage.
It’s best to prepare for the worst, just in case.
Mortgage interest rates in Canada are driven by the Bank of Canada’s policy interest rate. In March 2022, the BoC’s policy interest rate was 0.25%. It swelled to 5.0% by July 2023, and has stayed there as the BoC continues to hold rates, including most recently in April 2024. Mortgage rates have roughly doubled over that period.
What that means is being able to afford a mortgage is far harder than it was before, when rates were low. The upside is these higher rates are likely to have a dampening effect on house prices, so you may be able to buy at a lower purchase price. Here’s a sample of the current mortgage rates.
If you’re confident in doing your own research, and you found a lender you can apply to directly, then you might be able to cut out the middle person. But in most cases, it’s better to use a mortgage broker, as they have the experience and the ability to compare rates from multiple lenders, and walk you through the application process.
Regardless of what you decide, it’s worth comparison shopping rates and making sure your finances are in order before you apply for a mortgage.
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