When I bought my first investment property back in 2002, I went directly to a bank mortgage specialist.
However, over the years I discovered using a mortgage broker is a better option.
In this article, I’ll explain the top reasons why you should consider using a broker if you haven’t already done so…
Reason #1 – Banks are not loyal to you
I’ve had my personal banking with TD Canada Trust since I was a kid. With all those years of loyal business, you would think that the bank would offer ‘good customer’ perks, like lower interest rates, lower fees, etc.
However, I learned years ago that is absolutely not the case – banks don’t really care about that stuff. You might have a branch manager you’ve known for years who can occasionally waive fees. But as a general rule, there is no benefit to being a long standing customer.
Where you can get preferential treatment is when you have a large amount of assets or mortgage loans with the bank.
This is for 2 reasons:
- If you have a lot of assets (e.g. RRSP investments, cash, etc.), the bank can make more money from you. Cash can be loaned out at a higher interest rate, and you pay commissions in some form every time you buy or sell an investment. They know you can leave and go elsewhere with your assets, so you have more leverage to negotiate.
- If you have a lot of mortgages, the bank knows you’re an ongoing paying customer in the form of interest. Even if you have mortgages with other lenders, they know they can potentially win your business when your mortgages come up for renewal.
However, you don’t need to go to a bank to get preferential treatment on your mortgages. If you already have a portfolio, you can get this treatment (on interest rates and terms) by using a broker.
A good mortgage broker is loyal to you because they have to earn your business. There’s a lot of competition among mortgage brokers, and they only get paid when you close on your mortgage.
They know that if they do a great job, you’ll be a repeat customer and refer your friends. So there’s a smaller chance that they’ll push the wrong mortgage product on you, just to close the deal.
Reason #2 – Bank staff turnover is high
This is a problem I discovered years before I ever started in real estate. It’s rare today for a new bank employee to want to stay in one role. Quite often, they are going through ongoing training so they can move up the ‘corporate ladder’.
As a result, you’ll find that even if you spend the time to develop good relationships with tellers, mortgage specialists, and bank managers, usually after 1-2 years, they will ‘disappear’. That’s because they often move to another branch or department altogether.
With a mortgage broker, you can develop an ongoing relationship. That’s because their brokerage is their business and they’re in it for the long term.
Reason #3 – Brokers represent you, banks represent themselves
Many people don’t realize that you can negotiate at your local branch. Often times they just walk in, see the posted rates, and agree to pay them.
Sometimes they’ve already got a mortgage with their local bank, and a renewal notice comes in the mail with easy-to-sign paperwork. Those are posted rates as well.
The bank staff won’t tell you to ask for a lower rate. There’s no incentive for them to do so.
Mortgage terms and conditions are also “pre-set” by the banks in their contracts. If you’re a savvy investor and you read what you sign, you can make changes that are to your benefit. But the bank staff won’t give you a hint on what changes to make.
Lastly, if you’ve ever had to break a mortgage early, you know how large the penalties can be. In fact, these penalties can amount to tens of thousands of dollars! Banks don’t want to you understand the contract clauses for penalties because it’s a revenue source for them.
If you have a good mortgage broker, all these problems are solved. They can negotiate lower rates, they can ask for changes to the terms and conditions, and they can help you steer clear of high-penalty mortgages.
Reason #4 – Brokers can get you cheaper rates at your own bank
Mortgage brokers negotiate rates and terms with lenders every day. Many people don’t realize that these same brokers often also deal directly with the large banks… even the ones you’re currently using.
Due to the amount of business they bring, they can often get better rates and sometimes even better terms than you could ever do at your own branch.
In addition, brokers also deal with lenders that you’ve never heard of. That’s because those lenders deal only with mortgage brokers – they have no branches or ‘store front’ you can walk into. And their rates, terms and conditions can be much more favourable than going directly to your branch.
Reason #5 – Bank reps are not always mortgage experts
Many home buyers and investors believe that the mortgage specialists at their local bank are experts in mortgages.
However, what they don’t realize is that those mortgage specialists are just bank employees who often only understand one set of mortgage products – their own.
Unless you’re dealing with a true independent broker, you’re dealing with someone who only knows how to fill out mortgage applications, and answer a few questions about mortgage features.
And they won’t be able to help you find mortgages from other lenders who may have better rates, terms and conditions.
Reason #6 – There’s no cost to you
Some people think that a mortgage broker costs money.
However, in the vast majority of cases, their services are free. They are paid by the lender when the mortgage transaction closes, so there’s no money out of your pocket.
As you can see, there are tremendous benefits to using a good mortgage broker. If you don’t have one yet, I highly recommend you look for one that specifically deals with investors. They understand the investor mindset, and can help you find lenders that understand investors as well.