Now that you know the basics, it’s time to look at the actual process of applying for a mortgage. While the paperwork itself will be explained to you by an associate at the bank or mortgage institute, there are still some important things to know before you begin the application process.
1. Financial Institute vs. Mortgage Broker
Once you are ready to apply for a mortgage, you will need to decide if you want to use a bank or a mortgage broker. Currently, banks are the first choice for most Canadians, but mortgage brokers are growing in popularity. Additionally, as you will see, they both have their own pros and cons. In the end, which one you choose will depend on what you think it best for your situation.
The first thing you need to understand is the difference between a bank and a mortgage broker. If you decide to apply for your mortgage from a bank, you are asking to borrow money directly from them. This means you will pay their interest rate, and will deal with them if you have any questions or problems. Banks are often limited in which rates they can offer you, however you may be able to negotiate a discount. Doing so will be your responsibility. Lastly, one of the biggest benefits of using a bank is that you may already have an account with them, feel comfortable working with them, and trust them.
On the other hand, a mortgage broker is someone who shops around
for the best rates and then shows you what they have found. You do not borrow
money from a mortgage broker, they only act as a middleman. Employees at a
mortgage broker are paid a commission by the lender for every mortgage they
sell, meaning they don’t get paid unless you are approved. Many times, this
makes them very skilled at negotiating lower rates. Also, a large mortgage
broker firm may get special discounts from lenders. Finally, mortgage brokers
have a better picture of the whole market, and can help advise you on which
lenders are most likely to approve your application. This can be very helpful
if you have a poor credit rating. For more information on the Mortgage Brokers Code of Ethic, check out the Alberta Mortgage Brokers Association link in the Module 2 Resources section.