Pros & Cons of Using a Mortgage Broker

Pros and cons of using a mortgage broker

When you picture yourself getting a mortgage, you probably imagine heading to your local bank branch to sit down with a mortgage expert to discuss your options. This was once the standard process, but today it might be a mistake. In Canada, mortgage brokers are becoming more popular than ever, and are often a better choice if you’re looking for the lowest possible mortgage rate.

Of course, whether you’re buying your first home or you’re a seasoned property owner, the importance of securing the lowest possible mortgage rate can’t be overstated. Even a 0.1% decrease in your mortgage rate can save you thousands of dollars in interest charges over the life of your mortgage, which gives you more buying power today. So if mortgage brokers can get you a better rate, you should seriously consider them.

But are mortgage brokers better? Keep reading to find out everything you need to know about using a mortgage broker in Canada.

What is a mortgage broker?

A mortgage broker is a one-stop-shop for mortgages. Unlike your local bank branch, which can only offer you a mortgage (and mortgage rate) from their suite of products, mortgage brokers have access to many different lenders. When you make an appointment with a mortgage broker, it’s like you’re making an appointment with the major banks, credit unions, and trust companies, except you only need to meet with one person. A mortgage broker has access to products from multiple lenders of different shapes and sizes, which means you have access to these products as well.

If you’d prefer the security of getting a mortgage from a big bank, a mortgage broker can still set you up with one. In fact, good mortgage brokers will receive volume discounts from major lenders. That helps them secure a mortgage rate for you that is lower than you’d be able to negotiate yourself, even from the same big bank.

If your financial situation is a little unique, don’t worry. A mortgage broker’s job is to match you with the best lender for your financial situation. So even if you‘re a full-time freelancer, or you’ve had credit issues in the past, a mortgage broker can still work with you. If you’re having trouble getting approved for a mortgage by yourself, a good mortgage broker can sometimes use their relationships to get you an approval.

Mortgage Broker Pros
Easy to use:  Brokers are a one-stop-shop.
Free:  Brokers are paid by lenders, not by you.
Better rates:  Brokers have access to more and lower rates.
Access to more lenders:  Brokers make it easier to compare multiple lenders.
Expert advice:  They live and breathe mortgages, and can help you navigate.
Independent:  Good brokers want you to get the best rate possible, regardless of your final lender.

Mortgage Broker Cons
Lack of familiarity:  You’ll need to deal with a new person during your application.
No access to some lenders:  Not all lenders work with brokers.
More documents may be needed.

Let’s go into some more detail on the pros for using a mortgage broker in Canada:

Pros of using a mortgage broker
Easy:  Meeting with a mortgage broker has never been easier. Usually, you’ll need one meeting, and it can be in person or over the phone, whichever is best for you. Any documentation that is required can usually be sent through email, further streamlining the process.

Free:  You won’t pay a dime to your mortgage broker when you use their services. Instead, they are compensated by the lender.

Better rates:  Most mortgage brokers receive volume discounts from their top lenders, which means you’ll have access to lower mortgage rates than you could secure if you try to negotiate yourself.

Access to more lenders:  When you apply for a mortgage at a bank or credit union, you only have access to the products they offer in-house. With a mortgage broker, you’ll have access to dozens of lenders.

Expert advice:  Mortgage brokers are the experts at what they do and are accustomed to working with borrowers who may have unique needs, including freelancers or those with poor credit ratings.

Independent:  Since brokers are independent and don’t work for individual lenders, they can offer advice on a broad range of lenders. They can also advise you on which mortgage products are best for you, and tell you how much mortgage you can afford.

Cons of using a mortgage broker
Lack of familiarity:  If you’ve never used a mortgage broker before, you’ll need to establish a relationship with a new one. It may take a few tries before you find a good fit.

No access to some lenders:  Not all lenders work with mortgage brokers, so if you have a particular financial institution in mind, double-check that your mortgage broker can work with them before proceeding.

More documents may be needed:  Since you don’t have an existing relationship with this mortgage broker, you may be required to provide extra documentation – like proof of income – when completing your application

Should you use a broker? 
Working with a mortgage broker has almost no downside, because you aren’t obligated to move forward with your mortgage application until after you find out what mortgage rate you can secure and from which lender. In the best-case scenario, you’ll save thousands of dollars in interest on your mortgage. The worst-case scenario is that you receive free, unbiased advice that is personalized for your financial situation.

The other thing to remember is that mortgage brokers aren’t a zero-sum game. There’s nothing stopping you from speaking to a mortgage broker and one or more mortgage providers. Because every mortgage broker has relationships with different mortgage providers, it’s can sometimes be worth speaking to multiple mortgage brokers as well. The more offers you get, the more choice you have.
Article courtesy of Tim Bennett