Should You Use a Mortgage Broker or a Bank?

June 9, 2020
image of a hand giving new home keys to another hand

Buying a home may have you wondering to use a mortgage broker versus a bank. A house purchase is a huge investment and an important decision. An even bigger and confusing decision for some is how to secure a home loan. This can be quite stressful but not if you familiarise yourself with the financing options you can have.

Usually, people either go to banks or mortgage brokers when buying a new home. Both offer different mortgage deals and which source works best for you depends on your individual needs and loan circumstances. The best solution will be to do some groundwork and get quotes from as many sources as you can. After making comparisons and weighing the pros and cons you can reach a smarter decision. We’ll also provide some basics to help you make the right mortgage choice.

Mortgage Broker versus Banks

Relationship

Bank: Also known as “direct lender”, a bank will work directly with you. A mortgage bank will analyze if you qualify for a loan before giving it.

Broker: A licensed mortgage specialist does not lend directly, but will act as the middleman and will work with you and a wholesale lender. The lender can be a bank, an insurance company or small lenders.

Bank: A mortgage from your own financial institution is a more trustworthy and familiar option. If you have a good relationship with your bank then you may even get a discount. A bank can take care of the process in a timely manner.

Broker: When you opt for a mortgage consultant in most cases there isn’t any prior experience or a foundation built on trust. Therefore, it is advised to go for a well-reputed and experienced broker. Brokered loans can be time-consuming.

Bank: A bank has its rules and processes. It will not go the extra mile for your mortgage needs. Their point of interest is the bank.

Broker: A broker will explore different solutions for you, as he/she will be working towards your best interest.

Product Offerings

Bank: A bank will offer you its mortgage products and will let you know which one suits you. A lending specialist will be assigned the task to guide you through the process.

Broker: A mortgage broker offers more variety. He/she has access to multiple lenders and can help you compare prices and other features.


Bank: They only offer their products and thus the prices offered will also be non-negotiable.

Broker: They are more flexible and can find a better rate among multiple lenders.

Bank: Being large, they have several mortgage products and will have loans for all kinds of borrowers. However, smaller banks have limited loan options. 

Broker: An expert broker has knowledge of the entire mortgage market. A good broker can give you various mortgage options from the panel of their lenders to fit your situation.

Bank: A mortgage officer at a bank will have knowledge of only their own mortgage policy.

Broker: A mortgage specialist is an expert of the home loan process. He/she is also aware of exclusive deals not available in the open market

Bank: They charge application fees along with a few other payments. Some banks may charge very few fees, it depends on the product you are settling for.

Broker: A mortgage broker receives a commission from the lender and does not charge anything. However the lender has his own fee. 

Bank: A bank may not approve a loan of someone who is self-employed or has a bad credit history. If you maintain a strong credit history and the loan transaction is a straightforward one, then getting a loan from a bank will be easier and will save you time and money.

Broker: In a tricky loan scenario, a mortgage specialist will be a better option as a broker will give you a more personalized loan experience. A broker will find you a lender who is able to give a loan even if you do not have an immaculate credit history. He/she will take care of challenges you face like low-down payment and can get you a lower application fee or interest rate. This will help to put you on track so you are able to repay the mortgage loan as it suits you.

Convenience

Bank: They offer an easy solution for those with a straightforward loan file. You can simply go to a local bank, sit down with a loan officer and discuss the loan options.

Broker: Finding a good broker may not be that easy as there are many of them out there. You can find them through a local directory but it is best to go for a qualified broker referred by a friend or a close one who has had a good mortgage experience. 

Bank: They provide one-stop shopping and can offer more financial products. 

Broker: A broker cannot guide you about other financial products as it is not his/her domain.

Conclusion

In the end, the key is to shop aggressively. Do not hesitate to negotiate to strike a good deal. Before settling for any of the options, check your credit report and credit score and take it with you to discuss it with the lender. The more you shop and make comparisons, the better your decision can be. Get all the details regarding rates breakdown, the fees, points, and the loan deal so that there are no unpleasant surprises when you sign on the dotted line.