How to Choose a Mortgage Provider

When buying a home you have to decide where to get your mortgage from. Friends and colleagues may throw around the terms “lender” and “broker,” but you may not know what the difference is and which is actually best for you.

Familiar territory

Many people start by going to their bank, where they keep their chequing and savings accounts. Big banks have mortgage specialists who sell their own mortgages but won’t know or promote mortgages from outside institutions.

Mortgage brokers

It’s best to shop around to find the best rate and mortgage for you, and a mortgage broker will help you do exactly that.

Independent brokers are mortgage specialists who have access to many lenders and rates, and will negotiate the lowest rate on your behalf. Because they originate so many mortgages, brokers can pass volume discounts directly to you, the consumer.

Bank Mortgage Broker
Market Share Financial institution with banking products: personal banking accounts, credit cards, loans, and mortgages. An intermediary paid by the lender providing the mortgage. Licensed specialist with access and knowledge of many lenders and rates.
Lender Yes No
Prepares Application Yes Yes
Examples Scotiabank, RBC, TD, CIBC Canwise Dominion Lending
Pros You can consolidate your services with a provider you have a relationship with. Brokers shop around and negotiate for you, giving you the lowest rate on the market
Cons Even with the afromentioned relationships, banks are only going to present you with their products and rates. You are responsible for negotiating discounts on their posted rates. To get the lowest rate you may have to work with a provider that is not your primary bank. Remember you will still be able to set up auto-payments from your primary chequing account.

Types of mortgage lenders

Mortgage brokers work with a number of different lenders when helping you finance your mortgage:

  • Big banks: Large financial institutions are the first stop for first-time homebuyers because of a pre-existing bond through other financial products and many big banks work with independent brokers. Examples are TD and Scotiabank.
  • Small banks: More people are moving to smaller banks to receive better banking options. They can also offer competitive mortgage rates. Examples are National Bank of Canada, HSBC, Laurentian Bank, and ATB Financial.
  • Trust companies: Unlike credit unions and banks, trust companies have no deposits, meaning none of their own money to lend as mortgages. They arrange a mortgage agreement with you, then sell your mortgage to another institution.
  • Credit unions: Predominantly regional, credit unions are provincially regulated and are owned by their members. Examples include Vancity and Meridian Credit Union.

“A” lenders versus “B” lenders

The type of mortgage and rate you’ll get is largely based on your credit score. In Canada, your credit score can range from 300–900 and can be grouped in the categories below:

  • Credit over 680, “A” lenders: If your credit is over 680, you should be approved to work with “A” lenders, meaning financial institutions offering the lowest rates.
  • Credit between 600 and 680, between “A” and “B”: In this bracket, brokers and mortgage specialists will look into other aspects of your financial history to make a decision: regular rent or mortgage payments, paid utilities bills, and even letters from foreign credit bureaus for new Canadians. Depending on their findings, you could work with either an “A” or “B” lender.
  • Credit below 600, “B” lenders: If your credit score needs work, you’ll likely have to work with “B” lenders, like trust companies, with higher mortgage rates. This isn’t always a bad thing; you can begin your mortgage with a “B” lender for a short term, work on improving your credit, then transfer your mortgage to get a lower rate.
  • Very bad credit, private lenders: There are times when you’ll be declined to work with both “A” and “B” lenders. There are private lenders that offer temporary solutions, but at a very high cost. If you’re caught in this situation, it’s better to solve your credit problems then apply for a mortgage, rather than signing up for a mortgage with staggering rates.