Mortgage broker vs your bank: how they differ and how brokers are paid

In Ontario, your bank can offer only its own mortgages, while a mortgage broker can compare many lenders, including banks, credit unions, trust companies and monoline lenders. On most bank and monoline mortgages, the lender pays the broker, not you, and any fee must be disclosed to you in writing before you commit. Whether you use your bank or a broker, the lender makes the final decision on your mortgage.

What your bank does

When you apply at your bank, you deal with a mortgage specialist who works for that bank. The bank's specialist knows the bank's products well, can see your existing accounts, and may be able to bundle the mortgage with other banking.

The bank's specialist cannot offer you another lender's mortgage. If the bank's rules do not fit your situation, or another lender's terms would suit you better, the specialist is not in a position to tell you.

This limit is not a criticism of the bank. The bank's specialist represents one lender, and that is the job.

What a mortgage broker does

A mortgage broker works with a range of lenders. We work with many lenders, including banks, credit unions, trust companies and monoline lenders.

Monoline lenders offer only mortgages. Monoline lenders do not run bank branches, so many people have not heard of them. You usually reach a monoline lender through a broker.

In practice, a broker:

1. Learns your situation: income, debts, down payment, plans and how much payment change you can live with.
2. Explains the rules that apply, such as the stress test, down payment minimums and default insurance.
3. Compares lenders whose rules and products fit, looking at the term, prepayment privileges, penalties and portability as well as the rate.
4. Prepares and submits your application to the lender you choose, and works through the lender's conditions with you.
5. Stays involved through to closing, working with your real-estate lawyer.

Lenders differ in more than price. Each lender has its own policies on self-employed income, rental income, property types and how they calculate penalties. Matching you to a lender whose rules fit is often where a broker adds the most value, especially if you are self-employed or your situation is not straightforward.

How brokers are usually paid

For most mortgages from banks, credit unions and monoline lenders, the lender pays the broker when the mortgage closes. You do not pay the broker separately for that work.

In some situations, a broker may charge a fee, for example on certain more complex mortgages. In Ontario, brokers must disclose any fee to you in writing before you commit. If you are not told about a fee in writing, ask. A broker fee should never come as a surprise at closing.

It is reasonable to ask any broker how they are paid on your mortgage, and whether that payment varies by lender. A good broker will answer plainly.

Licensing in Ontario

Mortgage brokerages, brokers and agents in Ontario must be licensed by the Financial Services Regulatory Authority of Ontario (FSRA). Stonefield Mortgage is a trade name of Stonefield Capital Inc., FSRA mortgage brokerage licence #13722. You can ask any broker for their licence number before you share your information.

What a broker cannot do

A broker is not the lender, and that sets some clear limits on what a broker can do:

• The lender makes the decision. Every approval is subject to lender approval. A broker can present your application well, but cannot approve it.
• A broker cannot change the public rules. The stress test, down payment minimums and insurance rules apply regardless of who you work with.
• A broker cannot control the appraisal. If the lender's appraisal comes in below the purchase price, the lender generally lends based on its own valuation.
• A broker cannot give legal or tax advice. For the closing itself, you need a real-estate lawyer. For tax questions, such as how a First Home Savings Account or rental income affects you, you need an accountant.

When going to your bank makes sense

Going directly to your bank can work well, particularly if you have a long relationship there and are happy with its offer. If you go to your bank, it still helps to know how the bank's offer compares with other lenders' offers.

Look at the full terms, not just the rate: prepayment privileges, the penalty to break the mortgage early, and whether you can move the mortgage to a new home.

When a broker can help most

A broker is often most useful when:

• you are buying your first home and want the steps explained;
• your mortgage is coming up for renewal and you want to compare your lender's offer;
• you are refinancing;
• your income is less conventional.

You can also use a broker only to check your bank's offer before you sign.

For general guidance on shopping for a mortgage, the Financial Consumer Agency of Canada has plain-language material.

What to do next

To see what a broker can do for your purchase, renewal or refinance, use our call-me-back form and we'll be in touch. We never ask for documents, your SIN or account numbers by e-mail. You can read more about why people use a mortgage broker.