Financing Your Home Purchase – Mortgage Broker or Bank?

When it comes time to purchase a new home, where should you go for financing? You may have a relationship with a bank from past transactions (RRSPs, savings accounts, car loan), so it's the first option that comes to mind.  But, mortgage brokers are licensed specialists who have access to many lenders and mortgage rates, so they may be a better choice. Here are some pros and cons for each.

Advantages of Mortgage Brokers

• do all the negotiating for you to find the lowest rate
• have knowledge of, and access to, the entire mortgage market
• have exclusive deals not available on the open market
• buy large quantities of mortgage products, so they can pass on volume discounts
• their commission is paid by the mortgage lender
• can advise which lenders will consider your case and which will not (useful for people with poor credit ratings)
• have access to lenders who specialize in servicing people with poor credit
• can sometimes negotiate a better interest rate or lower application fee from the lender
• may pay for inspections or appraisals to close the deal (they get less commission but gain word of mouth advertising and potential client loyalty)
• are highly mobile and flexible so they can meet in person, when and where you want
• work for themselves so they are not aligned to one institution

Disadvantages of Mortgage Brokers

• some people are uncomfortable with a less familiar option
• first-time home buyers would not have pre-existing relationships with them
• lenders that offer good rates are often smaller, with unfamiliar names and reputations
• greater flexibility may lead to a mortgage you cannot actually afford (more risk)

Advantages of Banks

• can combine services at the bank you've worked with, and learned to trust
• can meet face to face, on your own time, even at your home
• may have lower closing costs because they’ll pay for some of the costs
• sometimes they pay the appraisal fee
• can give you perks within the bank like waiving account or safety deposit box fees
• have home equity lines of credit
• loan officers are paid salary, commission or salary plus commission by the bank
• easier to make mortgage or line of credit changes if all products are with one bank

Disadvantages of Banks

• can only access and offer their own rates and products
• often their rates are not as good as a mortgage broker's rates
• only give discounts on their posted rates if you ask
• if your credit score is poor, they might not take you on
• you have to be able to negotiate or you'll only get the standard deal with no extras
• you spend time and effort "shopping" for a good rate
• you may overlook the best rate