Most people dream of purchasing their own home but many of them don’t have the slightest clue about what they need to do exactly. For this matter, home buyers should be aware of the processes involved, for it is probably the largest purchase they will ever make.

Considering all the essential factors to keep you on track, home buying can be somewhat overwhelming. But the prominent measure to take is acquiring different mortgage rates and working with a knowledgeable mortgage broker that offers a wealth of experience.

The lending landscape has progressed and evolved and there’s a lot to choose from. So, if you want your purchase to be financed or refinanced, there’s actually a plethora of options available.

Here’s a guide to 4 of the common lending options available through a mortgage with the advantages and disadvantages of each.

1. Mortgage Brokers

Purchasing your dream home should begin by becoming familiar with available loan products. Most new home buyers may not really be knowledgeable about mortgages. That’s why working with an experienced mortgage broker is a smart choice.

Advantages: Mortgage brokers possibly know all the available mortgage products. Their expertise includes assessing your financial needs and being able to offer you trustworthy and knowledgeable mortgage advice. They have access to numerous mortgage lenders and are able to compare offers based on your financial suitability.

Disadvantages: Some mortgage brokers behave unethically. They practice the brokerage industry as a “get-rich-quick” business more than a profession. One reason for their unfair practices is their lack of adequate regulations. And for this, we advise you to opt for a broker that plays open cards regarding their fee structures and commission splits. 

You can read our article about the Mortgage Broker Qualities to Count On to help you in choosing a broker partner.

2. Private Lenders

These are private individuals or small organizations that help make legal, specialized real estate loans. This type of lender is an alternative option for home buyers that are having trouble with approval for typical loans. 

In comparison with conventional banks, a private lender not only focuses on the borrower’s credit history but also takes into consideration a property’s worth and marketability. This unconventional strategy opens up channels for many to still acquire a mortgage despite a poor financial background. A private lender believes that people are still able to repay their loans.

Advantages: Decent offers are given to home buyers and the process of approval is relatively faster than traditional means. With them, you don’t need to worry much about bad credit history or outstanding debts but be sure to submit all the necessary documents they require.

Disadvantages: For borrowers who have limited or poor credit, these types of mortgages come with higher interest rates (approximately 10-18% per annum), plus fees. 

A private lender may also require to maintain a high return of investment in accordance with the terms of their loan. And since most home loans given by this kind of lender are mostly short-term. A discussion with your mortgage broker to plan a realistic ‘exit strategy’ is wise due to its short-term nature and high costs.

3. Credit Unions

This type of mortgage lender consists of community savings and loan cooperative members who pool their savings to lend to one another and help to run the credit union. They’re quite similar to traditional banks in the sense that both institutions offer financial products to customers. 

Advantages: Their aims are to provide loans at low rates, help members in need of financial assistance and to encourage all members to save regularly. Additionally, fewer origination fees and other processing costs are required because they are less concerned with turning a profit.

Disadvantages: Credit unions have a few drawbacks as well. One of these is having a limited number of branches, shorter business hours than other banks and fewer ATM machines (if any). You can’t originate your mortgage with them if you don’t meet certain requirements and limitations set by the union.

They also don’t always keep up with the latest banking technology and don’t offer many web-based features that could mean inconvenience for you.

4. Banks

These are financial institutions that offer consumer loans, provide lines of credit and finance mortgages. Banks hold your money in savings, insurance and investments. They then lend the accumulated sum to individuals to enhance their own investments and funds. 

Some of the major banks in Canada are Royal Bank of Canada (RBC), Toronto Dominion Bank (TD), Bank of Montreal (BMO), Bank of Nova Scotia and Canadian Imperial Bank of Commerce (CIBC). They are known as the Big Five that dominates the Canadian business industry. 

Advantages: If you maintain a checking or savings account at the institution, your bank may offer a discount or incentive on your loan. Plus, if you’re a good client, your application can be easily approved.

Their systems and procedures are also in place for the convenience of their clients. They’re abreast of the latest technology and usually offer various digital media where clients can transact.

Disadvantages: They may offer loans at higher interest rates. They are conventional and have a slow process. They’re considered mortgage specialists as per their respective institutions, not required to have a license and are often less knowledgeable about the mortgage market.

Conclusion

As you shop around, it’s important to choose wisely from a broker whom you can trust to help with the single biggest financial decision you’ll make, which is purchasing your dream home. Sometimes, the “best rate” you’re being quoted to isn’t reliable and there is so much more to the process than you can imagine.

If you’re inexperienced or don’t know your legal rights, then a proven track record in this business is more valuable than the “best rate”. Price is what you pay, value is what you get.

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Daisy Raouph, CLU, CHS, specializes in mortgage financing solutions and financial services. A Mortgage Broker and Financial Security Advisor with over 30 years of experience in financial services. Contact us today to review your mortgage financing options. We can help!