Illustration by Annika McFarlane
I did something a little strange when I found a mortgage for my first home this winter.
I went on this newspaper’s regular report of lowest interest rates, found the cheapest one-year mortgage rate available, and went straight to that lender and worked with them directly. At no point did I use a mortgage broker.
Did I end up with mortgage term and interest rate I’m happy with? Absolutely. Did I essentially go into the process blind without talking to multiple specialists? Also, yes.
There are a mix of reasons why I did this: I was in a rush, so I didn’t feel like spending a lot of time talking to a bunch of people and I felt like I had already had a good sense of my strategy.
In essence, I was a bit lucky that things went relatively well. But a home is the biggest purchase of your life, and people should not rely on luck.
The options can be dizzying when you’re considering financing. There are major banks you might be a client with already, smaller lenders, credit unions and mortgage brokers in your community you’ve probably never heard of.
Jason Heath, managing director at Objective Financial Partners, says any good financing strategy needs to involve multiple mortgage specialists from different backgrounds. That includes mortgage brokers, who have connections with many lenders, and mortgage agents at banks and financial institutions you may deal with already.
The variables with different lenders go well beyond low interest rates. Different providers have different terms about breaking your contract, different fees, different requirements for green-lighting financing (such as property appraisals), and they can offer you different perks, such as skipping a payment or doubling up on payments to either provide relief or pay down your loan more efficiently. A broker will be able to discuss these pros and cons with your best interests at heart.
Mr. Heath says a broker will also almost always be able to find you the lowest rate. But he also says that you can effectively pit a mortgage broker and a bank against each other in your interest.
“My experience has been that sometimes … when push comes to shove, the bank will match whatever rate their mortgage broker can get,” said Mr. Heath.
“It can be a bit of a game, so it’s certainly worth talking to a mortgage broker.”
This strategy is great because your bank can also offer you perks such as scrapping certain banking fees if you become a mortgage client with them. Down the road, banks can also offer you a line of credit secured by your home’s equity, which can be a form of debt with lower interest rates than a standard line of credit if you have to repair or renovate your home.
As I discussed in my previous column, my time to shop around like this was limited because my financing search only began in earnest the day I reached a purchase agreement for my condo. This was partly because I was in denial that I’d even be able to reach a deal on a home.
It’s imperative that you start talking to specialists months before you plan to start making offers.
Mr. Heath says there’s also something to be said about the value of having all your banking under one roof. For example, if you bank daily with a Big Six institution, and use their investing platform and credit cards, then it could be nice to have your mortgage there too so that it’s easy to track your finances online in one spot.
Mr. Heath said a good online platform can also allow you to make changes to your mortgage or early payments online, while other lenders might require you to call in and wait on hold.
If bells and whistles aren’t your thing, Mr. Heath says mortgage brokers who work with a large number of lenders will be your best bet to find the cheapest rate (this is the option I went for in today’s high-interest-rate environment).
You might not recognize the name of the lender, but Mr. Heath says not to balk at that.
“If you’re going to deposit your money somewhere, it’s a concern if you’ve never heard of them, but if you’re borrowing it’s not as much of an issue cause you’re the one with their money,” said Mr. Heath.
Key Takeaways:
- Speaking to both a mortgage broker and bank could be a great strategy to get your bank to meet a smaller lender’s interest rate offer
- Interest rates aren’t everything. Consider hidden fees associated with smaller lenders, and perks such as better online banking platforms and discounts of banking fees
- Starting early will give you time to form a strategy, rather than rushing to go for what looks best
