The Canadian homeownership journey often starts with a crucial decision: choosing a bank, credit union or a recommended mortgage broker. The right choice can significantly impact your finances, the quality of the advice you receive for making your biggest purchase and the ease of securing a loan. In our ultimate guide to saving Canadians money on their mortgage, we’ll break down the key differences between banks and mortgage brokers, explore the pros and cons of each, and provide expert advice to help you decide what’s best for your mortgage strategy.

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Key Takeaways

• Banks offer convenience and brand familiarity but may have limited mortgage options and stricter criteria.
• Mortgage brokers provide access to multiple lenders and potential rate discounts, but quality can vary.
• Direct-to-consumer lenders offer online convenience and competitive rates but may have fewer product options.

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Key Players in the Canadian Mortgage Market

Before we dive into the specifics, it’s important to distinguish between the various professionals you might encounter in the mortgage world:

Licensed Mortgage Professional: Independent or salaried mortgage brokers, agents, or experts are licensed professionals with extensive mortgage knowledge. They may work with multiple lenders and many types of mortgage lending, giving you access to a wider range of products and potentially better rates.

Bank Advisor: Typically found at your local bank branch, they offer general financial advice and may handle mortgage applications as part of their broader role. While convenient, they might not have the specialized mortgage knowledge to secure you the best deal. Employees of a federally registered financial institution (FRFI) are not required to hold a mortgage licence to sell their mortgage products.

Mortgage Specialist: Employed by a bank or lender, they focus solely on mortgages and possess in-depth knowledge limited to their employer’s products.

The Difference Between Mortgage Brokers vs Banks

The core distinction lies in product availability. Banks can only offer their in-house mortgage products. Mortgage brokers, on the other hand, work with multiple lenders and present you with various options from different financial institutions and mortgage lenders.

You can still get a mortgage from a major bank through a broker. Many major Canadian banks, such as TD, Scotiabank, and BMO, work with brokers. If you choose a bank’s mortgage through a broker, it’s because you could compare multiple offers and find the bank’s solution or rate to be the most competitive or convenient. Many Canadians simply go to their bank or seek advice from mortgage brokers to hold their mortgage at the bank where they do their day-to-day banking. However, this convenience versus additional costs strategy could mean you pay more than your ever-increasing monthly bank account fees.  

Why Use a Mortgage Broker?

A mortgage broker acts as your advocate in the mortgage process, with a fiduciary duty to provide you with the right mortgage advice as a licensed professional.

Product Suitability Analysis: Assessing your financial situation to determine how much you can afford and which mortgage solution best aligns with your goals.

Product Comparisons: Presenting you with a curated selection of mortgage options from different lenders tailored to your unique needs.

Negotiating Rates and Conditions: Leveraging their relationships with lenders to secure the best possible mortgage rates and terms for your mortgage.

Pros of Using a Mortgage Broker

• Variety of Choice: Access to multiple mortgage lenders, products and solutions expands your options and increases your chances of finding the best deal.
• Discounted Interest Rates: Brokers often have access to exclusive rates due to their mortgage brokerage’s relationships and can negotiate on your behalf, potentially saving you thousands of dollars over the life of your mortgage.
• Advocacy: Brokers are legally obligated to work in your best interests and ensure you get the right mortgage for your needs.

Cons of Using a Mortgage Broker

Quality Can Vary: The quality of advice you receive from your broker will vary based on their experience and lender relationships.

Potential for Limited Options: Not all lenders work with all brokers, so your broker’s network might influence your options.

Fees: While most brokers don’t charge you directly, they receive a commission from the lender. In rare cases, if your mortgage is complex or your credit is poor, you might incur fees if you require an alternative lending solution.

Why Get a Mortgage From a Bank?

Getting a mortgage from a bank comes with several advantages, such as straightforward access, possible benefits for current customers, a solid local presence, and a range of mortgage choices. Many banks manage both the underwriting and servicing internally, which makes the process easier for borrowers. Their long-standing reputation can enhance customer trust. On the downside, banks typically enforce stricter lending criteria, so borrowers should consider comparing offers from different lenders to secure the best terms.

Pros of Getting a Mortgage From a Bank

• Reputation and Trust: Working with a well-known brand or a local branch can provide comfort, stability and security.
• Convenience and Familiarity: If you have a relationship with a bank, getting a mortgage from them can simplify the process. You’re familiar with their systems; they already have your financial records. Banks have a vast network of branches if you value face-to-face interactions and having a physical location to go to for questions or assistance.
• Potential for Packaged Deals and Perks: If you have a relationship with a bank, you can leverage that for preferential rates, benefits, discounts, or perks if you bundle your mortgage with other financial products, such as checking accounts or credit cards.

Cons of Getting a Mortgage From a Bank

Limited Product Range: Some banks may have a limited range of mortgage products compared to mortgage brokers, who can access various lenders and mortgage options.

Limited Selection: You’re restricted to the bank’s mortgage products, which might not offer the best rates or loan terms available in the market.

Stricter Mortgage Approval Criteria: Banks often have more stringent eligibility requirements, making it challenging for individuals with less-than-perfect credit or unique financial situations to qualify for a mortgage through a bank. This can make it challenging for self-employed individuals, those with lower credit scores, or those with non-traditional income sources to qualify.

Less Flexibility: Banks may be less flexible in negotiating mortgage terms or offering customized solutions for unique circumstances.

Potential for Higher Interest Rates: Banks generally offer competitive rates but may not always have the lowest available rates compared to mortgage finance companies, alternative lenders or mortgage brokers that differentiate insurable mortgage rates based on loan-to-value (LTV) ratios.

Slower Processing Time: Banks can sometimes have longer processing times for mortgage applications than other lenders, which can be frustrating if you’re in a time-sensitive situation.

Why Get a Mortgage From a Direct-To-Consumer Lender?

In addition to traditional banks and mortgage brokers, the Canadian mortgage market offers a new and innovative option for borrowers seeking a more straightforward mortgage experience. Online monoline direct-to-consumer lenders such as nesto are changing the mortgage landscape by providing fully digital and user-friendly solutions, all while ensuring a high level of expertise. These online lenders leverage technology to streamline the mortgage process and reduce the costs tied to physical offices and branches, resulting in considerable savings in both time and money for borrowers.

Pros of Getting a Mortgage From a Direct-To-Consumer Lender

• Online Convenience and Accessibility: You can apply for a mortgage anytime, 7 days a week, from the comfort of your home, eliminating the need for in-person meetings. You can also submit all your documents online.
• Fast Approvals and Processing Times: Due to the streamlined online process, direct-to-consumer lenders often offer quicker approvals and closing times than traditional banks. This can be particularly beneficial if you need to move quickly on a property.
• Expert Advice: As these are not FRFIs, you’ll have access to experienced and licensed mortgage professionals who can guide you through the process and answer your questions.
• Potentially Lower Rates and Fees: Online lenders often have lower overhead costs than traditional banks, which may translate to lower interest rates and reduced fees. This can result in substantial savings over the life of your mortgage.
• Flexible Qualification Requirements: Some online lenders may have more flexible qualifications with multiple investor relationships that provide lending guidelines for unique circumstances, self-employment income, or less-than-perfect credit.
• Transparent and Technology-Driven: Direct-to-consumer lenders often use technology to provide transparent pricing and options for insurable mortgages. 

Cons of Getting a Mortgage From a Direct-To-Consumer Lender

• Limited Product Selection: Some direct-to-consumer lenders may offer a narrower range of mortgage amounts and products than traditional banks or mortgage brokers. This can limit your options, especially if you seek specialized solutions or have specific needs.
• Potential for Hidden Fees: While many direct-to-consumer lenders are transparent, it’s still important to carefully review the terms and conditions, as some have hidden fees or costs that might not be immediately obvious.
• Limited Face-to-Face Interaction: If you prefer in-person interactions and having someone you can easily meet with to discuss your mortgage needs, you might miss that aspect with an online lender.
• Dependence on Technology: If you’re uncomfortable with technology or prefer a more traditional approach, navigating a mostly online application and communication process may be challenging.

Comparing Mortgage Brokers vs Banks and Lenders

Feature	Banks	Mortgage Brokers	Direct-to-Consumer Lender
Product Selection	Limited to the bank’s products	Wide range of products from multiple lenders	Varies depending on the investors’ risk appetite and guidelines
Interest Rates	Potentially competitive, but it might not be the best available. It might be priced based on other products cross-sold to you at your mortgage signing.	Access to exclusive rates and negotiation power. You may receive extra commission from banks if they get you to transfer banking or investments or lenders if they get you to purchase mortgage protection insurance.	Due to streamlined processes and technology, their rates are competitive and transparent. They offer third-party mortgage protection insurance but no other financial products.
Approval Process	It can be faster if you have an existing relationship with the bank.	It can be slower due to multiple lender applications.	Often faster due to online processes and efficient systems.
Fees	There are no direct fees, but there is potential for higher interest rates.	There are no direct fees from the borrower unless the mortgage is subprime, but brokers receive a commission from the lender on prime mortgages.	There are no direct fees but more savings for borrowers as overhead costs are lower.
Expertise	Depending on the individual bank advisor, advice may vary or be partial to selling the employer’s products.	Provincially licensed professionals with specialized mortgage knowledge advice may be impartial.	Access to experienced and licensed mortgage professionals, but the advice may be partial to what products/solutions the lender offers.
Convenience	It is convenient if you already bank with them. Online and the branch may be separate channels.	It can be more time-consuming due to multiple lender interactions, and they may not have an online application.	Highly convenient with online applications and digital communication.
Renewal	Banks typically sell hybrid mortgages on collateral charge registrations, keeping borrowers captive longer and making it harder to switch lenders for better rates at renewal.	They will switch lenders at renewal to find you the best deals so they can make a full commission each time.	Transparent rates are available to all transaction and mortgage types, including renewal, based on your loan-to-value (LTV) ratio and refinances. Direct-to-consumer lenders could provide long-term solutions as you won’t need to switch lenders at renewal to find a better rate.

Factors to Consider for Your Needs

Your Financial Situation: If you have a strong credit score and stable income, you can secure a competitive rate directly from a bank or a lower rate even faster from a direct-to-consumer lender. A broker can find a suitable lender if you have unique financial needs or a less-than-perfect credit history.

Your Comfort Level: A bank might be a good fit if you prefer a familiar brand and face-to-face interactions. If you value convenience and a more comprehensive selection of options, a broker or a direct-to-lender platform like nesto could be a better choice.

Your Time Constraints: If you need a mortgage quickly, a direct-to-lender platform or a broker with solid lender relationships could expedite the process.

Frequently Asked Questions (FAQ) on Mortgage Brokers vs Banks

Conclusion

Deciding between a bank, mortgage broker, or direct-to-consumer lender is essential in homebuying. Each option has its advantages and disadvantages depending on your needs. Banks are known for their reliability and may offer perks to existing customers, but they often have a limited selection of mortgage products and strict approval requirements. 

Mortgage brokers can connect you with various lenders and potentially better rates while advocating for your interests. Still, the quality of brokers can vary, and their commissions might affect their recommendations. Direct-to-consumer lenders use technology to streamline the mortgage process, providing convenience and transparency, although they may have a more limited range of products.

The best choice for you ultimately depends on your financial situation, comfort level, and the experience you want to have. If you’re seeking banking convenience and professional broker advice without altering your banking services, consider looking into direct-to-consumer lenders like nesto. Our approach could be what you need to reach your homeownership goals while saving you time and money. Finding a solution that offers competitive rates that align well with your overall mortgage strategy is essential to ensuring a smooth and stress-free experience.

If you’re looking for balance and want to benefit from a bank’s convenience with a mortgage broker’s personalized support, contact nesto today. Our professionally licensed mortgage experts can help first-time (FTHB) or repeat homebuyers navigate the complexities of mortgages or find the best mortgage rate and term for your renewal or refinance.

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Why Choose nesto

At nesto, our commission-free mortgage experts, certified in multiple provinces, provide exceptional advice and service that exceeds industry standards. Our mortgage experts are non-commissioned salaried employees who provide impartial guidance on mortgage options tailored to your needs and are evaluated based on client satisfaction and advice quality. nesto aims to transform the mortgage industry by providing honest advice and competitive rates using a 100% fully digital, transparent, seamless process.

nesto is on a mission to offer a positive, empowering and transparent property financing experience – simplified from start to finish.

Contact our licensed and knowledgeable mortgage experts to find your best mortgage rate in Canada.

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