With its strong economy and growing population, Ontario is a popular spot for real estate. Homebuyers and mortgage lenders are plentiful, and this means it’s easy to find both brokers and private mortgage lenders in any given city. You may have heard the terms “broker” and “lender” used interchangeably, but they’re not the same thing. Both can offer you flexible loans to help finance your real estate purchase, but there are some key differences.
If you’re seeking a mortgage in Ontario, make sure you understand the difference, then decide whether a broker or a private lender is right for you.
What is a Direct Mortgage Lender?
A direct lender is any mortgage lender that has immediate access to investment funds, rather than acting as a middleman between borrower and lender. A direct lender can be a bank, credit union, trust company, or private lender — any person or entity that controls a sum of available investment capital.
Many direct lenders in Canada, particularly banks, are strictly regulated in order to prevent predatory lending, unfair terms, and other dangerous mortgage practices.
Though these regulations are in place to protect you, it’s still always a good idea to shop around a bit. Read reviews and testimonials, and talk directly to different lenders, so you can find a reputable credit union or private lender in Ontario — one that has your best interests in mind.
What’s the Difference Between Private Lenders and Brokers?
The main difference between direct mortgage lenders and mortgage brokers is that direct lenders have their own capital to lend. A broker acts as a middleman between the borrower and the lender, helping the borrower secure funds from the lender. A broker does not have direct access to the funds.
What this means for mortgage applicants like you is that a direct lender may be able to approve mortgage applications faster, and potentially save you money by avoiding hidden costs and broker fees.
Because a direct lender has control of the investment capital, they may also be more available to answer your questions or address any concerns you may have about your mortgage or the lending process. Because they have a closer stake in the money that’s being invested, it’s in a direct lender’s best interest to ensure you fully understand the terms of your mortgage and have a viable plan for paying back the loan and interest promptly.
How do You Apply for a Mortgage From a Direct Lender?
The application processes for a direct mortgage versus a brokered mortgage are similar. Depending on which type of lender you opt for, you’ll need to provide some information about your financial situation, including your current assets, your current liabilities, proof of employment and income, and potentially other tax-related documents.
As with any type of mortgage, if you’re self-employed, have bad credit, or have income that fluctuates or is difficult to prove, you may have trouble getting approved for a direct mortgage from a traditional lender like a bank. In this case, you may be better off applying for a direct mortgage from a private lender — these types of lenders usually focus more on the equity in a property when deciding who to approve, and can offer loans to applicants with bad credit.
Like a broker, a direct lender in Ontario is free to exercise power of sale in the event that you default on mortgage payments. Keep this in mind, and have a backup plain for maintaining your payment schedule even if an emergency expense comes up.
Are There Any Downsides to Direct Mortgages?
Direct mortgage lenders may be restricted in terms of the types of loans they can offer. Some direct lenders, especially smaller syndicates and individuals, may only be able to offer small, short-term loans. This isn’t always the case, though, and many direct lenders can offer a wide range of loan types.
The nature of direct lenders also means that you have to approach each lender individually to get different mortgage quotes and estimates. If you want to shop around for the best mortgage, it’s more time-consuming to go through direct lenders. A mortgage broker can speak to multiple lenders on your behalf and find you the best rate. However, as long as you know what you need and are prepared to do a little extra leg work, a direct lender may still be able to offer you better rates.
Whether you’re looking for property in a busy urban centre like Ottawa or Toronto, or you’re seeking a home in a smaller city like Guelph, Kingston, or Thunder Bay, Ontario is home to numerous private lenders and banks that can offer you a convenient direct mortgage that works for you.