Mortgage broker vs. banker: Who should you see about a mortgage following a Bankruptcy or Consumer Proposal?

Your financial fresh start has opened a whole new work of possibilities for you, including the opportunity to become a homeowner. You’ve worked hard to rebuild your credit, saved up your down payment, and now you’re ready to get your mortgage pre-approval.

At this point, you may be asking yourself whether it’s better to deal with a mortgage broker or to talk to your local bank or credit union.

Preparing for your pre-approval

First, some housekeeping. Whether you decide to see your banker or a broker be ready to provide them with the following:

  • Identification
  • Proof of employment or other income source
  • Information about your other assts
  • Information about your debts
  • Notice of Assessment for past two years income tax returns
  • Proof you have saved a down payment

This information will help lenders determine a number of factors including (a) whether you qualify for a mortgage, (b) how much you qualify to borrow, and (c) what interest rate you qualify for given your lending risk.

To learn more about getting pre-approval for a mortgage visit the Financial Consumer Agency of Canada (FCAC) website.

Broker vs. banker: A head to head comparison

You’re likely familiar with the products and services on offer through your bank or credit union. However, mortgage brokers may be a little more of a mystery. Unlike financial institutions, a mortgage brokers don’t provide you with financing. Instead, they act as a sort of mortgage directory who shops around to find you the most favourable rates and financing terms.

According to Canada Mortgage and Housing Corporation’s (CMHC) 2019 Consumer Survey nearly half of buyers (47%) used a mortgage broker to negotiate their mortgage. But why would you choose one over the other? Let’s take a deeper look:

 

Mortgage Broker

Financial Institutions*

Competitive Rates?

·         Yes, a mortgage broker will shop around and negotiate rates on your behalf.

·         Brokers can access volume discounts which may not be available to your financial institution.

·         Banks can only offer their own rates and products.

·         Always try to negotiate, banks may be able to discount their posted mortgage rates.

Provide you with the mortgage?

No, the mortgage broker is a licensed specialist who has access to multiple lenders. They do the legwork of finding the best available deal on the open market, but do not provide you with the financing. 

Yes, the lender has loans officers who work with you to provide financing directly.   

 

Variety of products?

·         27% of buyers were offered other financial products.Ϯ

o   53% were offered a line of credit

o   80% were offered mortgage life insurance

·         34% of buyers were offered other financial products by their lender. Ϯ 

o   67% were offered a line of credit  

o   77% were offered mortgage life insurance

Able to help when you have a poor credit history?

Yes, brokers can access a variety of lenders and advise which are willing to work with people who have poor credit.

 

Banks often refuse to lend if you have a poor credit history.

Follow-up services? Ϯ

Almost half (46%) of buyers said their brokers followed up after they bought their home.

Only 35% of homebuyers were contacted by the mortgage lender after their transaction was completed.


* Financial institutions broadly cover banks, trusts, credit unions, and other direct to consumer lenders
Ϯ Data extracted from (CMHC) 2019 Consumer Survey  

What are your priorities?

Buying a home is a major life event. A mortgage is likely the biggest loan you will ever have, and a house is the biggest purchase you will ever make. The best mortgage for you (and therefore the best place to obtain it) will depend on numerous factors beyond the total amount you prequalify for or even the interest rate.

Things like your prepayment options, fixed or variable interest rates, term length, and penalties for selling your home before your term is up all merit your attention. There are also many different types of mortgages with a variety of options and features, so no matter who you go with it’s always best to do your research and shop around. 

Whether you use a mortgage broker or visit your local bank, be sure to ask lots of questions so you get the mortgage that is right for you.