Estimated reading time: 8 minutes
Working with mortgage lenders and brokers in Canada is the focus of today’s guide.
Your mortgage is one of, if not the biggest, financial commitments you will ever make.
When dealing with this money, you want to ensure it’s being spent as effectively as possible.
Thankfully, there are a myriad of experts out there who are trained to help you throughout the process.
Mortgage Process Key Players
You’ll encounter two key players through the real estate process: mortgage lenders and mortgage brokers.
Based on these titles, you may assume their roles are similar or interchangeable.
However, each professional performs two distinct and necessary functions in the mortgage process.
Understanding the difference between a mortgage lender and a broker is crucial before moving through the mortgage process.
This article will help demystify these roles, providing clear distinctions between mortgage lenders and brokers and helping you decide which option best serves your needs.
Almost every homeowner has been in contact with a mortgage lender in some capacity, as they are the key to securing the necessary financing to support your home purchase.
A lender can be any financial source provider, but banks and credit unions are the most common.
Private lending corporations, individuals with significant capital investments in mortgage lending as a portfolio addition, and other B lenders.
Mortgage lenders decide whether to approve loans based on various criteria, including the borrower’s creditworthiness, financial history, employment status, and the value of the purchased property.
The lender manages the fund provision for the sale directly to the home seller and services the loan by collecting payments from the borrower over an extended period.
Mortgage lenders are the entities that take on the financial risk, providing the necessary capital for individuals to purchase a property.
If a borrower defaults on the loan, the lender faces a loss, which is why general approval processes are often stringent and thorough.
As has been established, lenders have a lot of capital.
As a homebuyer, you need access to that capital, but you sometimes need to know which lender to contact or what type of mortgage is right for you.
That’s where mortgage brokers come in.
Rather than being the source of capital themselves, these professionals broker the lending of mortgage loans by facilitating relations between the borrower and the lender.
Brokers work independently or within a firm to guide clients through the mortgage process.
The best brokers have access to a wide variety of loan products and a network of lenders, which allows them to shop around and find mortgage loan options that best fit their client’s needs and financial circumstances.
A vital feature of a strong mortgage broker is someone who can negotiate better terms for your mortgage through their network and knowledge of product options.
Overall, mortgage brokers provide a valuable service to homebuyers by simplifying the mortgage process and potentially improving the terms of your mortgage loan.
After reading about the differences between lenders and brokers, you may still wonder what the value of working with a mortgage broker is.
Beyond everything, you do have the option to work directly with lenders yourself, avoiding the middleman.
However, choosing the right professionals to partner with throughout the mortgage shopping process will help diminish stress and save you time and money.
Mortgage Lenders vs. Brokers Comparison Chart
Here is a quick comparison of service offerings when you’re working directly with mortgage lenders vs. using a broker as an intermediary, so you can fully understand how complimentary these professional services can be to one another.
|The approval process, in theory, should be identical (The applicant submits to an underwriter. The file gets approved. the Broker and applicant sign back documents + satisfy conditions, and the lawyer receives instructions)||Using The Services Of Mortgage Brokers|
|Rate Comparisons||Homebuyer needs to do the legwork to compare rates from different lenders to find the best rate.||The approval process, in theory, should be identical (The applicant submits to an underwriter. The file gets approved. The Broker and applicant sign back documents + satisfy conditions, and the lawyer receives instructions)|
|Approval Process||The approval process is not easy. If you have a low credit score, are uninformed about alternative mortgage options, or have no prior relationship with lenders, you will not have access to many different options for terms, rates, and mortgage products.|
|Relationship Building||Important (not essential) to have a relationship with the lender before borrowing. It may take time to build.||The approval process, in theory, should be identical (The applicant submits to an underwriter. The file gets approved. the Broker and applicant sign back documents + satisfy conditions, and the lawyer receives instructions)|
|Cost||Both models of applying for a mortgage are free to the applicant. The only fees through a broker are if you do not qualify for a best-rate mortgage and need to go through B or private lenders.|
|Time & Effort||Broker compares rates from various lenders to find the best rate for your situation.||The broker manages many aspects of the mortgage process for you.|
|Options||The approval process is not easy. If you have a low credit score, are uninformed about alternative mortgage options, or have no prior relationship with lenders, you will not have access to many options for terms, rates, and mortgage products.||As mentioned, brokers have pre-established relationships with many lenders and mortgage products, increasing the likelihood of finding a loan to fit your unique circumstances.|
Most Canadians get mortgages and go through a lender.
On the other hand, only about 30% of Canadian homeowners go through a mortgage broker to assist them through the mortgage process.
This means that a considerable part of the population needs to unlock the full potential of the mortgage process as they go through it.
Consider this: If a home is listed at $500,000 without a mortgage broker, you may take the first mortgage rate you’re approved for.
Let’s say the rate you lock is 4.5% with a 5-year term – you will pay about $97,452 in interest payments over those five years.
Instead, let’s say you choose to work with a mortgage broker, and that broker negotiates your rate down to 4.4% interest, just 1% less.
Over that same 5-year term, you will pay over $2,000 less in fees because your broker could negotiate and compare rates on your behalf.
Working with a mortgage broker is helpful to everyone entering the mortgage arena, but there are some specific personal circumstances where a broker is particularly beneficial.
The home buying process is inherently stressful, but for first-time homebuyers, that stress level is dialled up to the extremes.
One study showed that a third of first-time home buyers “shed tears” during home buying at some point.
Apart from providing first-timers with valuable industry connections, a mortgage broker can also help guide them through the mortgage process.
It often helps to access a readily available resource to send you information and the next steps in the process.
Minimum Credit Score
Banks, Canada’s most commonly used mortgage lenders, generally require a minimum credit score of 600 to qualify for a mortgage loan.
Unfortunately, if you’ve got a low credit score, it can be exceedingly difficult to be approved for a mortgage loan with an A lender.
That’s where a mortgage broker can come in and provide the assistance you need to get the best mortgage possible for your situation.
If you’re looking to refinance your current mortgage rate and find a better deal, a mortgage broker is a great resource to help.
They can provide you with access to additional resources and contacts that you otherwise may not have thought of, and they often have experience specifically with specialized refinancing programs.
Getting mortgage financing and buying a home is a time-consuming process.
A mortgage broker can benefit anyone who does not feel they have enough time for it.
Mortgage brokers handle much of the legwork concerning the lending process, including gathering necessary documents, pulling your credit history, verifying your income and employment, and submitting the loan application to lenders on your behalf.
They can save the average home buyer a ton of time.
Using The Right Mortgage Specialists
Working with the right professionals is very important during the mortgage process.
Without a mortgage lender, you won’t be able to achieve the funding you need for your home.
Without a mortgage broker, you won’t access the same mortgage resources and rate savings as other homebuyers.
When used in tandem with one another, lenders and brokers can be highly beneficial to every homebuyer.
Knowing the difference between these two vital industry professionals is the first step as you embark on your mortgage journey.
Check out the Chris Allard Mortgage Team if you’d like to start working with a mortgage broker.
About The Author
Chris Allard is the Lead Mortgage Broker at Chris Allard Mortgage Team. Chris and his team of mortgage agent professionals assist borrowers with their mortgage needs throughout the greater Ottawa area and beyond. Recognized as one Canada’s top 75 mortgage brokers, Chris is dedicated to advancing knowledge and resources. He was a finalist at the Canadian Mortgage Awards last year and is a DLC Hall of Fame member.