Despite the Big Banks consistently not having the best mortgage rates in Canada, most Canadians still don’t go to a mortgage broker or even compare mortgage rates online. Only around 1 in 3 Canadians got their mortgage through a mortgage broker, meaning the other 2 in 3 go directly to a bank.
Perhaps one reason that so many Canadians go to their bank directly for a mortgage is because they feel comfortable. They already know the bank and may have several chequing accounts, savings accounts, credit cards and loans with them already. Since they already do so much business with their banks, they know the kind of service they can expect – and are happy with it.
The idea of going to a mortgage broker can make you feel nervous, especially if you haven’t before. One concern that we hear from our clients is “I don’t know anything about the lender.” While it’s true that a mortgage broker may suggest a lender that you’ve never heard of, there are many good reasons for that. Hopefully understanding those reasons will make you feel more at ease when shopping for your next mortgage.
One thing the Big Banks do very, very well is marketing. Banks like RBC and TD spend hundreds of millions of dollars in advertising to make sure you know who they are and what they do. It can be as simple as a poster on a window at the branch or as complicated as a multi-media advertising blitz with radio, TV, and internet ads.
The Big Banks are literally Canada’s most well-known brands. All 5 are in the top 10 most recognized brands in Canada, with RBC and TD taking spots 1 and 2, respectively. It’s safe to say that every Canadian knows each of the banks.
You probably have not heard of smaller lenders like Merix, NPX, Lendwise, or RMG. That’s not because they offer worse products, but because they don’t spend millions of dollars per year in advertising. Instead, they keep that extra money and use most of it to fund mortgages at a lower rate.
These lenders rely on mortgage brokers to refer customers. It’s a win-win for you because you don’t have to pay a mortgage broker (they get paid from the lender) and you get a better mortgage rate!
Having little to no marketing budget doesn’t mean these companies are shady, it just means that they’re putting their money where it’s most useful.
The reason big banks have higher interest rates than monoline lenders is because they need to charge more to cover their operating costs. A bank will have thousands of employees over hundreds of branches and also spend huge amounts on advertising. A small lender will have far fewer employees at fewer locations, resulting in less overhead.
Big banks charge more because they can, not because it’s the best rate available. Even though we know that they don’t have the best rates, a majority of Canadians still go to them for their mortgage needs. Why would they lower their rates when they don’t have to?
Your mortgage broker can even get a better mortgage rate from your bank. Banks give mortgage brokers better deals than walk-in customers because they know there’s competition for that mortgage. Brokers will negotiate on your behalf to get you the best rate.
The interest rate is one of the most important parts of a mortgage, but it’s not the only part. There are other factors to consider that can end up saving you money in the long run even if the interest rate is slightly higher.
Here’s the process we use to determine which lender is right for you, in no particular order:
2. Income and Affordability
3. Credit Score
4. Property Type and Location
5. Property Usage
6. Interest Rate
The amount of money you need to borrow to purchase a house vs. the amount that house is actually worth is known as the LTV. Some lenders won’t refinance above 80%, for example, while others only give the best rates for a home purchase when the LTV is between 80 – 95%.
It’s no surprise that the more you make the more you can afford. In every case, making more money makes it more likely to qualify for a mortgage. In the same way, higher debt makes it more difficult to get a mortgage.
We determine your affordability to see what the max amount of home you can afford is. If you want to do it yourself, check out our affordability calculator.
It also matters if you’re salaried or self-employed. Self-employed individuals are often denied mortgages from big banks because their income is harder to prove, but many lenders are happy to help entrepreneurs.
Your credit score affects your mortgage qualification in a big way. At high credit scores (above 760) you’ll get access to the best mortgage rates, while at low credit scores (under 560) you may not even get approved.
Many lenders only approve mortgages for certain credit scores. “A” lenders will only lend to those with excellent credit, “B” lenders prefer to lend to people with average – good credit scores, and private lenders usually work with people with poor credit. There are exceptions to each of these rules, but that’s how it normally works.
Lenders like to stick with areas they’re comfortable with. Smaller lenders with fewer branches based in the GTA may not want to lend a mortgage out in Thunder Bay.
Some lenders also prefer to deal with detached homes rather than condos.
How you plan on using your home actually has a strong impact on your mortgage. Using it as your primary residence is the easiest to approve, while intending on renting it out can make some lenders shy away.
Several mortgages may have the same features but at different interest rates. We always shop for the best mortgage rate for you with the features you need.
Keeping all these factors in mind, we shop around until we’re satisfied that the lender is the best fit for your needs. You can even compare all of this on your own if you’d like – it’s free to search over 700 mortgage offers on RateShop.ca.