Mortgage broker vs bank in Alberta: which should you use?

What a bank and a brokerage each do

A bank is a lender. It lends its own money under its own policies, and it sells its own products. The person you meet in a branch works for that lender, and their job is to put you in one of that lender's mortgages.

A mortgage brokerage isn't a lender. It arranges a mortgage between you and one of a panel of lenders. In Alberta, brokerages are licensed by the Real Estate Council of Alberta (RECA) under the Real Estate Act, and each individual holds one of 2 titles: Mortgage Associate or Mortgage Broker. You can look any of them up on RECA's public ProCheck registry in about 30 seconds, and it's worth doing.

The practical difference is how many options you see. A branch can tell you what one lender will do. A brokerage can tell you what its whole lender panel will do. That matters more the more unusual your file is, and most files are less standard than people expect.

Brokers now handle 38% of recent Canadian buyers and 48% of recent first-time buyers, according to Mortgage Professionals Canada. That share has been rising steadily for a decade.

How a broker gets paid

On a standard residential mortgage with an A lender, the lender pays the brokerage a commission when the mortgage funds, and you pay nothing. The commission is a percentage of the mortgage amount and varies a little by lender and term length. It doesn't come out of your rate. The rate you're quoted is the rate the lender offers through brokers.

There are 3 complications worth knowing about:

Longer terms usually pay more. A 5-year term generally pays a higher commission than a 2-year. That's a conflict of interest, and the right way to handle it is to disclose it. Ask why a term is being recommended, and expect an answer about your file, not about the market in general.

Alternative and private lending works differently. A B-lender or private mortgage normally carries a lender fee, a brokerage fee or both. These must be disclosed in writing and agreed before the application goes in. If a fee shows up late in a private deal, treat that as a problem.

Lenders don't all pay the same. It's fair to ask questions of a brokerage that only ever uses 1 or 2 lenders, or one that won't tell you which lender it's sending you to and why.

Alberta requires a written service agreement under Rule 43 of the Real Estate Act Rules. It sets out the relationship and the compensation before any work starts. It's short, so read it.

Lenders you can't reach on your own

A large part of the Canadian mortgage market has no branches. Monoline lenders, which only do mortgages, lend exclusively through brokers, so you can't walk into one. They compete on rate and prepayment terms because that's all they have to compete with.

Most credit union mortgages are available through brokers too, and in Alberta that matters more than elsewhere. Alberta credit unions are provincially regulated and aren't bound by OSFI Guideline B-20, so they set their own qualifying rules. On a file that falls just outside a bank's criteria, that can occasionally turn a decline into an approval.

The lender also decides how your penalty is calculated, and most people don't think about it until they need to break a mortgage. The big banks generally calculate a fixed-rate interest rate differential (IRD) against their posted rate, after applying your original discount. Monolines and credit unions generally calculate it against the discounted rate you signed. If you break an ordinary Alberta mortgage mid-term, the gap between those 2 methods can run to five figures. It's written into your contract terms, not your rate, so you won't see it until you need it.

One credit check instead of five

If you shop on your own, you apply at each lender and each one pulls your credit. A broker application is one inquiry, shown to the whole panel.

Credit bureaus already treat several mortgage inquiries within a short shopping window as one event, so the effect on your score is small and temporary either way. The time difference is bigger: 5 branch appointments over 2 weeks, compared with one conversation and a document upload.

| | Bank branch | Mortgage brokerage | |---|---|---| | Lenders available | One | Typically 40 or more | | Starting rate | Discounted from a posted rate | The lender's broker-channel rate | | Who pays | You, in the rate | The lender, on funding | | Credit inquiries | One per lender you approach | One, across the panel | | Unusual income or property | Whatever that lender's policy says | Whichever lender's policy fits | | Existing relationship pricing | Sometimes better | Can't access your deposit relationship | | Regulated by | Federal, OSFI and FCAC | RECA in Alberta, with a public licence registry |

When your bank is the better choice

If a brokerage tells you it always wins, it's selling to you. Sometimes the branch is the better call.

You have a large deposit or investment relationship. Private banking and premium relationship tiers can price the mortgage against everything you hold with them. If that's you, take our rate to your bank and let them beat it. Sometimes they will.

You want to blend and extend mid-term. If you're partway through a term and want a better rate without paying a penalty, only your current lender can blend. A broker can't help with that.

You need a specific in-branch product. A few products, such as certain readvanceable structures and some business-linked arrangements, are only offered in-branch.

The difference is small and you value the relationship. If your bank matches a competitive rate with the same terms, staying makes sense.

If your bank has the better deal, take it.

Questions to ask a bank or a broker

These 6 questions work on both sides of the desk. The answers tell you more than the rate does.

1. What's the APR, and what's in it? Ask for more than the rate. Every mandatory fee should be included in that number.
2. How is the prepayment penalty calculated on this product? Specifically, is it a posted-rate IRD or a discounted-rate IRD?
3. What are the prepayment privileges? The lump-sum percentage, the payment-increase percentage, and when you can use them.
4. Is it portable, and is it assumable? If you might move during the term, this is worth more than a few basis points.
5. Is this a no-frills product? Some low-rate products come with a bona fide sale clause, which means the only way out is to sell.
6. Who is the lender, and why this one for my file? A specific answer about your income, property or timeline is a good sign. A general answer about the market isn't.

If they can't answer all 6 without checking, keep asking until someone can.