Mortgage Brokers vs. Banks in Ontario: Comparing Financing Options

Real Estate Law
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Mortgage Brokers vs. Banks in Ontario: Comparing Financing Options

Most of us will need a mortgage when purchasing a property in Ontario. You must have a down payment from your savings and then borrow the difference from a lending institution to close your purchase transaction.

How do you choose whether to finance your purchase through a bank or with assistance of a mortgage broker? Both options have their benefits and drawbacks. Do not be intimidated by the fact that shopping around will lower your credit score, as all mortgage-related inquiries on your credit bureau within a 45-day period will not bring down your score substantially… In this article, we discuss the key differences between each option and how they can impact your mortgage financing.

What are the Advantages and Disadvantages of Financing Your Purchase Transaction with a Bank?

Historically people were drawn towards financing their mortgages with a bank, as banks are deemed trustworthy institutions. Working with a bank gives clients peace of mind because the financial institution has been around for a long time, and will most likely not be dissolved any time soon. Some consumers may find this type of stability an attractive option.

Some banks tend to offer better rates and preferential treatment to their own clients rather than consumers without a previous relationship with the bank. Therefore, consumers may benefit from financing through their own bank if they have a long-standing relationship with that bank.

How Can Consolidating Services with a Bank Aid in Mortgage Approval?

Banks may offer an option of consolidating their services to allow the borrowers to finance their new purchases. For instance, if a person has a bank account and a large consumer visa as well as a line of credit with the same institution, the bank may approve their mortgage and merge some of their consumer debt into the mortgage loan. Thus, Reducing current consumer debts with the same bank while approving mortgage financing for the refinance, lowering their clients’ debt service ratios. On the other hand, if you are borderline and buying a house and asking your bank for a mortgage they may require you pay off or even close some other credit facility you have with them.

One of the main drawbacks of financing your property with a bank is that the bank can only offer its own products. So, if you applied for financing with Royal Bank, the bank can only offer these home buyers their own mortgage products or home equity line of credit.

Is It Challenging to Negotiate Mortgage Rates with Banks?

Another drawback is that the interest rate offered by the Bank may be higher than that of the rate procured by a mortgage broker. The banks often offer discounts on their posted rates, but it is up to the consumer to negotiate a discount. Without a previous relationship with the bank and not having a professional to negotiate a discount, consumers may end up with mortgage financing at a higher rate than they otherwise would, had they used a mortgage broker.

Due to the banks’ stricter lending practices and different underwriting requirements, not all consumers may be able to qualify for a bank mortgage. Consumers who are self-employed, have lower credit, or have a higher debt-to-service ratio may find it challenging to qualify for a bank mortgage and as such will have to look for alternative financing options through mortgage brokers.

The banks may, from time to time modify their balance sheet and rates in an effort to discourage new mortgage borrowers, and as such reduce the number of mortgages in their portfolio. Consumers who are oblivious to their bank’s short-term lending policy changes may end up being approved at an inferior rate to that available through mortgage brokers.

What are the Advantages and Disadvantages of Financing your Purchase Transaction with a Help of a Mortgage Broker?

Consumers are increasingly finding value working with a mortgage broker. Licensed mortgage specialists have access to multiple lenders including banks, credit unions and alternative lenders. Mortgage brokers have access to a much wider range of lenders and as a result will be able to talk to several lenders on your behalf and present you with the alternatives prior to formally submitting for an approval.

Mortgage brokers can offer reputable lending alternatives to banks such as credit unions or trust companies. Alternative lenders often have different underwriting practices that allow for higher debt- service ratios. They may also tolerate a lower credit score, as well as provide financing solutions for hard to verify income individuals such as those who are self-employed.

Is It Safe to Share Personal Information with Mortgage Brokers?

Mortgage brokers will request the required information from the consumer to qualify for a mortgage. Some people may feel uncomfortable sharing their personal information with a broker rather than a bank, but if a consumer does their research on the mortgage broker, disclosing personal information to a licensed mortgage broker should not be a deterrent.

Mortgage brokers will build the consumer’s mortgage application, organize their documents and frame the consumer in the best possible light to their mortgage lenders. The broker essentially becomes a go between for the lender and the consumer.

Once the mortgage broker has a full picture of your finances, he/she would be able to suggest the best lenders to apply for financing that would be a good fit for your application.

Working with a mortgage broker who has a great reputation and long standing relationship with lenders will greatly benefit the consumer as the savings offered to the mortgage broker will be passed along to the consumer.

While mortgage brokers have access to a variety of lenders, not every broker has a working relationship with all financing institutions. Therefore, as a consumer it is crucial to select a mortgage broker who is in business for a respectable amount of time, works with many lending institutions and is in good standing with their licensing board. If you choose a mortgage broker who has access to a small number of lenders, you may miss out on better rates and terms from other lenders.

Are There Fees Associated with Using a Mortgage Broker?

Some consumers may be deterred from working with a mortgage broker because they think there will be fees associated with their assistance. It is important to note that no fees are charged by the mortgage broker in most cases, especially if you are funding with a bank or other A-lender. If a mortgage is especially challenging, a mortgage broker may charge fees. However, the fees should be discussed ahead of time, and no mortgage can proceed without the borrower’s consent.

Whether you choose to finance your purchase transaction with a bank or with the help of a mortgage broker, one thing that is not guaranteed is the quality of service with either option. Consumers should rely on search engines and reviews by other consumers when evaluating each option. Consumers should speak to the bank as well as the mortgage broker to get a feel for who they would be more comfortable to work with.

What Are the Key Differences Between Banks and Mortgage Brokers?

There are key differences in services and offerings between the two options. While the bank is a traditional option, consumers may feel limited by the choice of mortgage financing products. For some consumers, such as the self-employed or people who have had credit challenges, banks and other A-lenders may not be an option to finance their purchase.

Lastly the banks have stricter lending policies and underwriting requirements making bank mortgages harder to qualify for. Mortgage brokers will work with the consumer and apply to several financial institutions and try to find the best option for the consumer. It is important to note that working with a mortgage broker is a matter of convenience. With mortgage brokers you get a wider range of options and potentially better customer service. (And it can all be done remotely with phone, email and video meetings as needed. No reason to make trips to the branch).

It is critical to connect with a bank representative or a mortgage broker and speak to the person who you will be working with. This will help you determine if you feel comfortable with that person and whether they have the necessary level of expertise to assist you in your financing needs. Working directly with a professional will greatly improve your chances of getting you the right mortgage financing and getting you one step closer to home ownership.

 

Banks in OntarioFinancing OptionsMortgageMortgage Broker
Disclaimer

The Content is current as of its original date of publication, but should not be relied upon as accurate, timely or fit for any particular purpose. Content is provided solely for informational purposes. It is not intended to be legal or other professional advice or an opinion of any kind. You are advised to seek specific legal advice by contacting members of MBLAW (or your own legal counsel) in relation to your specific legal issues.

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