May 25, 2016
Paul and his partner, Melanie, are looking to buy their first home. Like many young couples, home ownership is their next step toward building a future and a family together. But first they need to decide how to finance that step. Melanie is convinced that the security of banks is the way to go, but Paul isn’t so sure.
For Melanie, banks are the more trusted, familiar choice. She trusts that her bank will be there long after her mortgage is paid off. What’s more, her bank knows her financial history, and can easily merge her financial services—it may even offer bonuses like reduced fees or cash back for doing so.
How banks work
Like any other retail businesses, banks operate as retail lenders by loaning funds directly to consumers. Because they are a familiar one-stop financial shop, they are often the seemingly obvious option for many first-time homebuyers like Paul and Melanie.
But working with a bank may also limit their options. Getting a retail mortgage though a bank means working with just one institution, and only that institution’s rates and products. It is up to them to negotiate with the bank’s loan officer to get a rate lower than the posted rate for a mortgage.
Working with a mortgage broker
A wholesale mortgage through a licensed mortgage broker may be a better option. Mortgage brokers are provincially regulated and must pass a licensing exam. But rather than drawing from the rates of one institution’s lenders, a mortgage broker will work with potential buyers to find the lowest possible rate for them and will do the negotiating on their behalf.
That’s because mortgage brokers offer access to wholesale lenders that are not directly available to customers like Paul and Melanie. And, as with any wholesale goods, wholesale prices can be lower.
A mortgage broker working for Paul and Melanie can compare the rates from a number of wholesale lenders, act as the go-between to do the paperwork, shop the best prices, and negotiate as necessary to link them with right lender.
How to decide
There are many factors for Paul and Melanie to consider when making the decision between retail and wholesale mortgage options. And so should you. Here are three important factors to take into account:
1. Your financial history. Melanie, for instance, has a long history with her bank; Paul’s credit history isn’t as strong. He’s worried about being rejected by a bank, and a mortgage broker can work with Paul’s credit in mind to find a lender.
2. Your current situation. Paul and Melanie would like to purchase their home soon. They are unfamiliar with the mortgage process and are overwhelmed by the options. While going with a bank is a trusted solution, a mortgage broker can make the process easier by assisting in every step of the home buying process.
3. Your future. To find the right mortgage, Paul and Melanie must compare the long-term pros and cons of all the options available to them. The chart below highlights some of the factors to consider.
|No fees – get paid by lender||Management fees|
|Shop for you to get the best deal – can provide volume discounts||Offer their own rates, products and services|
|Work with a many lenders||Offer their own rates, products and services|
|Will need to develop relationship||Trusted, ongoing relationship|
|Will save you time by doing paperwork and negotiating on your behalf||Allow you to merge services and may offer benefits for doing so|
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