A mortgage broker mediates between the borrowers and lenders, but they do not combine their funds to originate mortgages. They help you find the most fitting mortgage lender for you. If you have a mortgage broker, they do almost the paperwork for you.
A mortgage broker should be distinct from a mortgage agent. An agent will meet with you and help you smooth the mortgage process.
They give you advice on your purchasing plans, goals, and possible lenders. A mortgage agent will also have to be supervised by a mortgage broker.
How does a mortgage broker work?
Whether you are buying a new home, a home renovation mortgage, or refinancing, a mortgage broker gathers loan options from various lenders for the potential borrower to consider.
You are to provide documents to your mortgage broker, such as proof of income, assets, and employment documentation. Employment documentation includes your credit report and other information for assessing the borrower’s ability to ensure financing.
A credit report usually determines your approval on the loan you’re applying for. It has your credit history which helps mortgage lenders determine your creditworthiness.
After determining the borrower’s ideal loan type, loan-to-value (LTV) ratio, and the appropriate loan amount, the broker submits the loan to a lender for approval.
Once agreed upon, mortgage funds will be in the name of the mortgage lender then the mortgage broker collects a commission.
How do they collect a commission?
You are not the one paying a mortgage broker; it is the mortgage lender. They will be given a guide that the mortgage broker will follow as a guideline for their commission.
When applying for a mortgage, knowing and understanding your choices is vital. There are various options where you can get a mortgage; you can choose a bank and a mortgage broker.
What is the difference between Bank and a Broker?
Banks
Banks can offer their products, and your choices are available to their products only because banks are direct lenders. You can always shop around for banks to get a lower interest rate, but going from one bank to another would be a hassle.
It would be better to stick to your current bank with which you have built a relationship. It would help you with easier negotiation and get a better mortgage deal.
Pros:
- You’re already familiar with the bank and have built trust. Building trust is a challenging thing to do, especially when it comes to finances. It’s your home that you’re buying, and a mortgage is a long time commitment. So, trust is a very crucial thing to consider in applying for a mortgage.
- Trust is two-way. If banks trust you just like you trust them, you can negotiate for a lower interest rate and get perks that you won’t be able to access on your own.
Cons:
- As mentioned earlier, banks only offer their products. So your options will be limited to their products only, and you won’t be able to explore more.
- Banks have strict conditions for approval. It will be challenging for you to apply for a bank mortgage because of their protocols which makes it hard to get permission from the bank.
Mortgage Broker
Mortgage broker, on the other hand, has various selections for products. The broker is between you and your lender, and he’ll connect both of you. In that case, the broker doesn’t have products to offer; instead, they connect you to lenders.
A mortgage broker has access to multiple mortgage lenders and mortgage rates. They shop around for mortgage lenders and will then negotiate for you. After all, are done, they will present the lowest interest rate possible in the market.
If you are creditworthy, brokers do not charge you. Creditworthy have solid credit ratings and can easily pass the stress test. Otherwise, they might charge you.
Pros:
- You will have a large selection. A mortgage broker works with multiple lenders, which can give you various options to choose from.
- Discounted rates. Your mortgage broker will negotiate for you and make you have the lowest interest rate you won’t be able to access on your own.
- They’ll be on your side and are legally obligated to work with you.
Cons:
- You won’t get every option because not all lenders work with a broker. Options are limited to the lenders that your broker is working with.
- Even if you are creditworthy and are free of charge on brokers. You should expect that there are still fees to be aware of in your contract.
Is it the best choice to choose a broker for your mortgage?
The answer depends on you. Which do you think is the best suited for you and will work with you in the long run. However, a broker would be an easier choice. They do all the work for you, and you must provide the documents they will need to process your mortgage.
On the other hand, on banks, you have to do all the work, and the limited choices will restrict you to a comfier option.
Conclusion:
A mortgage is a fierce and long-time commitment. If you do not commit enough, then everything will go downhill. You will not lose your home only but the hard-earned penny that went on the mortgage and down payment.
A mortgage broker can help you and make things much more manageable. Private Mortgage Canada is here to help you with your application and give you the lowest market interest rate.
