There are ways in which homebuyers can obtain a mortgage. They include using mortgage brokers, direct from lenders (often through their in-house mortgage specialists) as well as credit unions and private lenders. It is important to know about the advantages and disadvantages of each to ensure that you’re getting the best mortgage product for your needs.
Mortgage brokers are licenced professionals who work either for large brokerages or on their own to sell mortgage products. Brokers work with a variety of lenders and therefore can do the shopping around on behalf of the customer. Brokers provide their service free of charge to the customer and are compensated by the lender whose product they end up selling.
Some lenders cut out the middleman (mortgage brokers) and sell their mortgages directly to consumers (usually through branches or mobile mortgage specialists). Certain lenders also make their mortgages available through other channels (i.e. brokers). The Big Six banks are generally the most popular direct lenders. Credit unions and trust companies can also be lenders. Example of Canadian mortgage lenders include:
Here are the advantages of getting a mortgage directly from lenders:
Getting a mortgage directly from lenders can have its disadvantages too.
Mobile mortgage specialists, an increasingly growing channel, accounts for 25% market share. Mobile Mortgage Specialists sell the products of the bank they work for but unlike bank sales staff, they focus entirely on mortgages. They are also fully commissioned employees and also may operate their own businesses. A mobile Mortgage Specialist is essentially a hybrid of a broker and a branch salesperson working for a direct lender.
Credit unions, known as caisses populaires in Quebec, are another common way to obtain a mortgage. There are more than 700 throughout Canada and they typically provide a more community-focused approach to banking. Credit unions are regulated provincially, and as such are not necessarily subject to federal mortgage rules, such as the mortgage stress test. This can make credit unions a popular option for those unable to qualify at federally regulated financial institutions.
The largest credit unions in Canada include:
Private lenders tend to focus on niche markets (i.e. bad credit customers) and make up a very small percentage of the overall market. A private lender can be an individual, a group of individuals or a business. Private lenders are often a lender of last resort for those who cannot obtain a mortgage through one of the other channels. Private lenders normally charge much higher rates to compensate for the higher risk of the individuals they lend to. For this reason, private lenders are typically used as a short-term funding solution, until such time that the borrower can rebuild their credit and secure a more competitive mortgage through traditional channels.