When it comes to buying a home, you’ll most likely require financing. You can either go directly to a bank, or work with a professional mortgage broker. In this article, we uncover the facts to finally answer the question we’ve all been wondering – bank or broker?
No matter where you go for a mortgage, the process follows the same path. To start, you’ll be required to fill out an application (either in person or online) and consent to a credit check. The credit check is an important part of the application process, because it paints a picture about your capability of paying back debt.
For example, if your credit report shows that you have 3 credit cards, and a car loan that all get paid on time every single month, that says something about you. A lender will look at that and think, well this person pays all their bills on time, I can trust that if I grant them a mortgage, they will pay that on time as well. Alternatively, if your credit report shows 3 credit cards, all with late payments, a car loan that hasn’t been paid in two months, and a cell phone bill that went to collections, this is a huge red flag. If a lender sees that, they have no reason to think that you’ll pay their mortgage on time, if you’re not paying your other bills.
After taking a look at your credit and application, your income will be used to determine the maximum loan that you can qualify for. As of 2018, in Canada all borrowers are required to qualify using the Stress Test. The Stress Test was put in place by The Office of the Superintendent of Financial Institutions (OSFI). In order to prevent mortgage default, borrowers must be able to qualify at the bank of Canada benchmark rate (currently 5.34%) or two percentage points above the contract rate (whichever is higher).
Getting a Mortgage with a Bank
Almost all banks offer their own suite of mortgage products, which can be very appealing for mortgage borrowers. If you already bank somewhere that offers mortgages, wouldn’t it make the most sense to have your mortgage with them too? Usually not…
Why? Because banks can only offer their mortgage products, which are not a perfect fit for every single client. The mortgages at your bank may have stricter prepayment rules than other lenders, higher rates, unappealing terms, the list could go on.
In some cases, the mortgage offered by your bank IS the perfect fit, but if it isn’t, it is unlikely that they’ll tell you that. This is a where mortgage brokers come in.
Using a Mortgage Broker to Get a Mortgage
Mortgage brokers are licensed individuals who source out suitable lenders on your behalf. They help you gather all your documentation and put an application package together. We spoke to Erica McNeill, a mortgage professional in Vancouver who noted that “one of the top reasons to work with a broker instead of a bank is that they work for YOU and not for the lender, so you can always be assured that your best interests are in mind.”
Once a mortgage broker puts together your application package, they review mortgage products from their network of 40+ lenders. Because all clients have different stories, having access to a wide range of mortgage products is extremely important. A broker can help you find the exact mortgage product that fits your unique situation (something that is not possible at a bank).
Bottom Line: Choose a Mortgage Broker
At the end of the day it just makes more sense to work with a mortgage broker. Their goal is to find you the best product, at the best possible rate. In most cases, you are not even required to pay for their services. For mortgage financing – broker is the way to go.