Mortgage Broker or Bank - Does it Matter?

Updated by Chris Richards on Jan 21, 2021

As a licensed mortgage broker, the question often gets asked what do we do, and how are we different from a bank.

In this blog, I am going to briefly talk about being a mortgage broker in Alberta, however most lenders in Canada have a national focus, so arranging a mortgage in Edmonton or Calgary is the same process and the same rules as working with a borrower in Toronto, Vancouver or Halifax as examples. Happy to help, wherever you are!

1. What is a Mortgage Broker?

In a nutshell, they are independent, trained specialists licensed to represent and provide you with the best advice for your home or property financing needs.

They are retained by the client to shop the mortgage market (including banks, trust companies and other financial institutions) and to provide independent advice in choosing a mortgage commitment to fit the client’s particular needs.

It is a similar service as that of an insurance broker or travel agent in that the professional is highly trained within a very complex industry.

Often they can obtain home loan commitments with better terms, options and interest rates than the client can obtain on their own;
Saves you considerable time and effort; and
Potentially save thousands of dollars over the term of a mortgage.

The mortgage broker is typically paid a fee by the lender upon successful funding (no charge to client). If the broker intends to charge you a fee, as would be the case in commercial, agricultural, business and non-bank (private) lending, this must be disclosed up front to the client. In Canada, there are provincial licensing requirements:

A mortgage broker licensed in Alberta under RECA is required to arrange financing for AB residents (Calgary, Red Deer, Edmonton, Grande Prairie, Lethbridge, Medicine Hat, Fort McMurray, or any of the smaller towns or rural locations in between, doesn't matter.)
A mortgage broker licensed in British Columbia under FICOM is required to arrange financing for BC residents, wherever you are located.
A mortgage broker licensed in Ontario under FSCO is required to arrange financing for ON residents in Toronto, Ottawa or wherever else you are located.
Many brokerages including ours hold multiple licenses, and through our national brokerage affiliation with Verico (via what we call the Deal Desk), our licensing reach is coast-to-coast.

2. Can a Mortgage Broker get me a better deal than my bank?

In most cases, yes. They represent you, the customer, not the lender. This is important to understand because they are not employees of a particular lending institution, hence can shop around and present you more than one choice.

they are not limited in the products they can offer you nor the location the lenders or they work from
they know of lenders you wouldn't even think of, including location-specific lenders, such as credit unions and private lenders, who have niche lending areas and products.
'choice' for you means they can seek out the best lender package to suit your specific situation, whether it's with a chartered bank, trust company, insurance company or from private lenders and it is their job to know where the best mortgage rates Alberta can be found.

While you will find no differences between Calgary mortgage rates and Edmonton mortgage rates (as examples) for mainstream single family housing, there may be certain lenders who can lend in difficult locations (like a Fort McMurray mortgage) or different property-types, such as mobile homes, condos, or loans for acreages, and offer better rates than your bank. This kind of knowledge not only results in the more savings to you, but often whether a loan is possible at all!

Contrast this to a visit to your own bank:

By virtue of the fact that you've made and waited for an appointment (hence showed loyalty to your bank), the bank rep knows you're not really shopping around
If you're not shopping around, the temptation may exist to offer you a good rate instead of a great rate.
Say they quote you a 3.04% interest rate, but you are aware your sister she just got 2.89% from a different lender, which you mention to the rep. Time for the ol' "let me talk to my manager" routine
don't kid yourself; all banks are in business to extract cash from the consumer's pocket, and when you are sitting in their office you might just be a sitting duck.

In addition to rates, because mortgage-based financing is the broker's primary business, he or she has developed expertise in what type of deals each lender prefers to pursue (and there are many lenders to be sure) as well as the ability to compare features, like who has the the least punitive mortgage payout penalties as an important example. Many retail banks sting their customers annually with thousands of dollars in penalties playing a game called the "posted rate" game where they artificially manipulate the penalty if you have to break your mortgage contract early. For best results call your independent broker first!

3. How do lenders advertise their interest rates?

Best interest rates are always a concern to borrowers. Daily, the banks and lending institutions working with the brokerage marketing channel send out email updates on their rate specials and lending programs trying to attract new business.

These lenders know that mortgage brokers are only going to refer them business if they are offering excellent interest rates, on fair terms, and with good customer service.
Because of their daily contact with multiple lenders, mortgage brokers know which locations or home-types attract more favourable interest rates from one institution to another.
Further, some "mon-oline" institutions will only accept mortgage submissions from mortgage brokers, which keeps their costs down (vs. a bricks 'n' mortar lender, like RBC or BMO) and allows the mono-line lender to be very aggressive on their interest rate offers. Mono-line means the institution only offers mortgages, not car loans, nor credit cards, etc.

These rates, and preferences for types of mortgages, can change daily depending on economic circumstances or based on the size of an institution's portfolio in a particular type of mortgage. Unadvertised rate specials are frequent.

A good mortgage broker keeps current and knows which lenders to approach first. As a result, mortgage rates obtained by mortgage brokers are among the best available at the time of placement and indeed among the best mortgage rates Canada, period.

4. Getting the best Alberta mortgage rates is important, but what else?

Another important distinction to understand is that they have the knowledge required to present a tricky proposal for financing to lenders in the best way possible to successfully obtain property financing.

Financing approval can be tricky for a number of reasons:

nature or length of the client's job, especially self employed,
credit score and credit history
size of down payment
type of property to finance (raw land, multi-million estate homes, acreages, mobile homes, and remote locations for example, can all be tricky).

The good news is, there is a wide assortment of loan options and features available to home buyers today.

Shopping around takes a lot of time and effort.
The approval process within today's very competitive marketplace intimidates many Canadian home buyers, especially first time home buyers.

It pays to work with a professional who will represent you and ensure the financing you get is the one best suited to your needs.

Choosing the wrong deal can cost you thousands of extra dollars.
While your bank might not care (as they only have one choice), an independent does, and can help you save thousands over the life of your loan.

Further, if you are looking on how to buy a house in Calgary for example, a Calgary mortgage broker is likely to have local contacts that can assist you in your purchase, such as local Realtors, lawyers, appraisers, etc., and even be familiar with the neighborhoods you are interested in. Same goes to buy a house in Edmonton; a mortgage broker Edmonton may have more local knowledge that can help you get connected in your target area. That being said, with today's technology (smart phones, SMS, email/fax/scan, etc.) it's way more important to deal with a competent and trustworthy mortgage broker than choosing on location. While you might start your research online looking for mortgage brokers Edmonton, mortgage brokers Calgary, mortgage brokers Red Deer, etc., also take a moment to look at the website, social media presence, and testimonials, too, and ask around.

5. Should I skip dealing directly with my bank?

A professional presentation to the right lender on the first application will get the best response and save you valuable time and money. If you go shopping from one bank to another on your own, not only will it take time, there may also be multiple inquiries on your credit report. These "hard pulls" can reduce your credit score. As well, secondary applications with previous credit bureau inquiries may be more costly, because it may signal that you have been turned down elsewhere.

If you are a first time buyer and your first search is simply "can I get a mortgage Calgary" or some derivative, then absolutely contact a mortgage broker first and let them guide you quickly through the process with out making costly mistakes. They should be able to tell you in 10 minutes on the phone if you can qualify, or what steps to take if you can not. Unlike a bank, there is usually no appointment required. If you like, you can get started now and certainly before contacting a Realtor. FYI, the Realtor's first question will be - have you been pre-approved?

If you really-really want to go through your bank, you can still use a mortgage broker to represent you to your own financial institution. This can often result in a better rate than you could get on your own, because your own institution is likely offering lower rates to the mortgage broker channel than they offer their own customers sitting in their office.

6. Do Brokers only do residential mortgages?

Brokers can place all types of loans provided they are backed by mortgage (property) collateral. This includes small loans backed by residential property to million dollar commercial loans backed by commercial property.

Mortgage-backed loans in the millions are not uncommon with private pension funds and private lenders.

In addition to handling straight mortgages, mortgage brokers are often called on to assemble financing (based on mortgage collateral) for businesses. Mortgage brokers excel in this type of financing package because of their expertise in looking at loans from a mortgaging perspective, as well as their knowledge of financial institutions' interests and desires for a particular product at specific times.

When you develop a relationship with a full-time mortgage broker, it is often a relationship that will last a long time, with multiple lending scenarios and advice spanning years, and perhaps for your family members too.

Can You Mortgage Qualify? Explore further here.

Working with a Mortgage Broker - learn more.