What is the Difference Between a Bank Mortgage Representative and a Mortgage Broker?
Is 2020 the year you purchase a home? If so, you might feel a little overwhelmed by all of the working parts of the process - one of which is choosing who to work with to obtain your mortgage. Two common options are banks and mortgage brokers. At the end of the day, both of them work towards getting you a mortgage, but they each have different strategies on how they get there. If you’re looking to learn more about the difference between a bank mortgage representative and a mortgage broker, continue reading below.
What is a Bank Mortgage Representative?
Banks have provided mortgages to their customers for decades. When you book an appointment with a bank, you’ll meet with a representative of the bank that will walk you through the process.
When it comes to mortgages, banks on the overall level don’t have your best interests at heart. Ultimately, they want to sell you their financial products so they can make money. However, at the individual level, bank representatives tend to develop close relationships with their customers. For this reason, the representatives tend to have a deep understanding of their customer’s needs and goals. This can motivate the representative to find the ideal mortgage for you with a favourable interest rate.
In addition, a mortgage client is desirable to a bank and they won’t want to forgo the opportunity. Therefore, they may offer incentives such as a cashback bonus or payment of a home appraisal fees to secure your business.
Pros & Cons of Working with Banks
Below are the advantages and disadvantages of working with banks:
- Comfortable Relationship. If you’ve been with your bank for years and years, there will be an extra layer of comfort and security when obtaining a mortgage. Should you have questions about the mortgage at any point, you’ll also have a familiar place to go where you can have your queries handled.
- House Finances in One Place. If you get a mortgage with your primary bank, it can be convenient to have all your finances in one place.
- Bad Credit is an Issue. Bad credit is a big no-no with banks. This means that if you don’t have the greatest credit, you’ll have a lot of trouble getting approved.
- Motivated to Sell One Product. Banks are only motivated to sell one product: their mortgage. They aren’t in the business of finding you the best interest rate.
- No Competitive Rates. Bank mortgage representatives aren’t able to offer competitive rates because they only have one product to offer and have no control over the interest rates.
What is a Mortgage Broker?
Before we dive into what a mortgage broker is, let’s have a mini history lesson! Several decades ago, individuals looking for a mortgage would simply visit their local bank. There weren’t many other mortgage lenders on the market at this time meaning that your local bank was the easiest and most optimal solution. But, over the years, banks have charged more fees and provided less friendly customer service. This caused people to have little faith in banks and they began to search for more competitive offers on the market.
Enter the mortgage broker. A mortgage broker is a licensed professional that works with various lenders to find their customers the best mortgage rates on the market. Using information the customer provides on financing desires, housing needs and credit history, a mortgage broker will do all the work to find the best mortgage on your behalf.
Naturally, this service costs something because the mortgage broker must get paid. Although, the fee is not your obligation. Mortgage brokers get a referral fee or commission from the lender that provides you with the mortgage. Since the mortgage broker only gets paid when you accept a mortgage, they’re motivated to find you what you want.
Pros & Cons of Working with Mortgage Brokers
Below are the advantages and disadvantages of working with mortgage brokers:
- Bad Credit is Okay. Mortgage brokers can often find a lender that will work with a borrower that has bad credit.
- More Options. You’ll receive more options with a mortgage broker than with a bank. The chances of you getting a lower rate is higher this way.
- Goal is to Help You. Mortgage brokers are in the business of finding ideal financial products for their customers. On the other hand, banks are only interested in selling you their product.
- Less Work for You. Instead of you shopping around for an ideal mortgage, a mortgage broker will do the work for you. This leaves more time for your family, friends and work.
- Lack of Existing Relationship. Most people only buy a home once. Even if you purchase a home twice, the purchases will likely be decades apart. For this reason, you likely won’t have an existing relationship with a mortgage broker which can make the process much more daunting and unfamiliar.
- No Other Product Offerings. Banks offer any type of financing product under the sun whereas mortgage brokers can only provide you with a mortgage product.
How to Choose Between a Bank and a Mortgage Broker
Generally speaking, working with a bank is ideal if you have good credit, a connection within the bank and want the convenience of having all your finances in one place. On the other hand, working with a mortgage broker is ideal if you don’t have any connections, have difficulty wrapping your head around financial concepts and don’t have the time to find a good mortgage on your own.
That being said, the choice between a bank and a mortgage lender is a personal one. The choice you make depends on your financial situation and preferences. Before making your final decision, take a moment to evaluate your budget and consider other aspects of your personal finances. The choice will become more clear once you assess your situation!
Finding Your Home
Between the newly implemented stress test and the sky high prices of homes in Canada, obtaining a mortgage seems intimidating. You’re right to feel daunted as a home is likely the largest purchase you’ll make in your life! But the process can become less intimidating once you do your research and gain an understanding. They don’t say “finding” your home for nothing - it’s definitely a process!