If you’re a beginner shopping for a mortgage, you’ve probably heard that you can go with a bank or with a mortgage broker, but what’s the difference? In this article we’re going to go over the similarities and differences between the banks and mortgage brokers, and the pros and cons of going with one over the other.

What is a bank?

Alright, the chances are you’re probably already familiar with a bank, seeing as you’re probably not searching for a mortgage without a bank account. As large financial institutions, banks make money by accepting deposits, then lending money to their clients and collecting interest. When you get your mortgage with the bank, the bank acts as the mortgage lender and provides the capital that you use to purchase your home. When you get a mortgage with the bank, you have access to that bank’s mortgage rates and terms. Examples of banks include CIBC, RBC, TD, BMO, and Scotiabank.

What is a mortgage broker?

A mortgage broker on the other hand, is a licensed professional who works with you to get a mortgage from a lender, which could include the banks, credit unions and private lenders. Most mortgage brokers work for a mortgage brokerage. Perch is a digital mortgage brokerage, with access to many lenders including banks.Our mortgage advisors can help you pick a mortgage that is  best for your financial situation. 

Mortgage brokers usually do not lend money themselves.Instead, they sell mortgages on behalf of other lenders, which means you aren’t limited to one lender. While banks make money on the loan itself, mortgage brokers make money through commissions that are paid by the lenders they connect you with. Examples of mortgage brokers included Perch, and True North Mortgage.

What are the pros and cons of going with a mortgage broker instead of a bank?

There are benefits to going with either option, but overall we feel that it’s generally better to go with a mortgage broker and here’s why:

The main benefit that borrowers find going with a bank is trust and convenience. Since almost everyone has a bank account, you’ve worked with a bank before and are familiar with them. Most people inherently trust banks more because they are considered reputable institutions and they may already be familiar with their service. But that’s usually where the benefits end. On the downside, going with a bank may lead to lengthy wait times when applying for the mortgage and during the approval process, and worse mortgage rates as you are only shopping with one lender.

Mortgage brokers on the other hand have access to many different lenders and so can allow you to shop for rates and find the lender that offers you the best terms for your financial situation. With a digital mortgage brokerage like Perch, we also automate a lot of the process to get you pre-approved in a little as 20 minutes.

Conclusion

To sum it up, banks operate as a lender and make money on your mortgage loan, while mortgage brokers connect you with multiple lenders to shop for the best rates and get paid by the lenders for doing so. If you prefer the comfort and familiarity of your bank over shopping for rates with a mortgage broker, you might be leaving some money on the table.
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