Mortgage broker vs bank: where should you get your mortgage?

You can get a mortgage directly from a bank or through a mortgage broker. Both can give you a good deal, and the best choice depends on your situation and how much comparing you want to do.

The short version: a broker shops many lenders for you and is usually paid by the lender. A bank offers only its own products, but may reward you for keeping your accounts there. Get a quote from both.

What a mortgage broker does

A broker is licensed to work with many lenders at once, including banks, credit unions, monoline lenders (which only do mortgages) and private lenders. Brokers are regulated by provincial regulators, such as FSRA in Ontario and BCFSA in British Columbia, and must disclose how they are paid.

For most borrowers the lender pays the broker's commission, so the service usually costs you nothing. Fees can apply for harder cases, such as borrowers who need private financing, and they must be disclosed before you sign.

What a bank offers

A bank offers its own products only, but you may get convenience, a discount for having your accounts and investments there, and one place to manage everything. Banks also have staff who can advise you on your whole financial picture. Some banks will match or beat outside offers to keep your business, so it can pay to bring a competing quote.

Where a broker helps most

• Comparison: rates, terms, penalty rules and prepayment privileges across lenders.
• Harder files: self-employed borrowers, new-to-Canada borrowers, lower credit scores or unusual properties may be placed with a lender that suits them.
• Credit unions and monoline lenders: products you may not know about, sometimes with lower rates or friendlier penalty rules.

Where a bank can win

• Existing relationship: you may get rate discounts or lower fees.
• Simplicity: one point of contact, and mortgage and banking in one app.
• Renewal: your own lender may offer a good renewal rate if you ask.

Questions to ask either one

• What is your best rate for my term, and is it a posted or discounted rate?
• How is the penalty calculated if I break the mortgage?
• What prepayment privileges do I get?
• Can I port the mortgage, and is the rate fixed for the term?
• How are you paid, and are there any fees?

Example

Two offers at 4.00% and 4.05% look nearly equal, but the 4.05% lender may have a much milder penalty and better prepayment options. Over a five-year term the 0.05% difference is about $13 a month on a $500,000 mortgage, while a penalty difference can be thousands of dollars.

How to decide

Compare the full terms, not only the rate. The lowest rate is not always the best deal. Many people get one quote from their bank and one from a broker, then choose.