Why Your Bank Might Be Costing You Thousands (And What Smaller Lenders Actually Offer)
Last week, a client walked into my office frustrated.
She’d been banking with the same institution for 15 years. Excellent credit. Stable income. When her mortgage came up for renewal, her bank sent the standard letter with a rate offer.
She assumed it was competitive.
It wasn’t.
After comparing 20+ lenders, we found her a rate that would save $10,000+ over five years. Same mortgage. Different lender.
This happens more often than you’d think.
The Question Everyone Asks
Should you go with a major bank or a smaller lender for your mortgage?
I tell every client: the question misses the point.
You don’t need to choose between big or small. You need visibility across the entire market. Because when you walk into your bank branch, you see one option. When you work with a broker, you see 20+.
The difference is huge.
What Most People Don’t Know About Smaller Lenders
When I mention alternative lenders to clients, I often hear the same concern: “Are they safe?”
Fair question.
Most smaller lenders are multi-billion dollar institutions. They’re Schedule A banks regulated by OSFI. Many are backed by CMHC. Big banks fund these smaller lenders through investments.
Your mortgage from a smaller lender? There’s a good chance RBC or TD is backing the funds.
Stability isn’t the issue. The difference is how they compete.
Why Smaller Lenders Often Beat the Big Banks
Smaller lenders need to be aggressive to gain market share. They compete on three things:
Better rates. To win business from the Big Six, smaller lenders offer something better. As of early 2025, major banks averaged around 4.64% on 5-year fixed rates. Some smaller lenders offered rates as low as 3.79% for insured mortgages.
Better prepayment privileges. Broker-only lenders offer strong prepayment options. You pay down your mortgage faster without penalty. Big banks? They’ve moved away from flexibility.
Lower penalties when life happens. Here’s something I emphasize with every client: bigger the bank, bigger the penalty.
When TD Bank slashed its posted rates in 2025, borrowers who expected a $5,400 penalty owed over $22,000. Big banks calculate penalties using inflated posted rates instead of contracted rates.
Smaller lenders typically use actual rates. The difference could be $15,000 or more.
The Insured Mortgage Advantage
If you’re putting down less than 20%, smaller lenders become even more attractive.
CMHC-insured mortgages reduce lender risk. Smaller lenders securitize these mortgages and sell them on the back end. They don’t carry the mortgage on their balance sheet, so they offer more aggressive rates.
The numbers tell the story. Borrowers are finding better options beyond the Big Six. Mortgage Finance Companies and alternative lenders have grown steadily across Canada, giving homebuyers more choices than ever.
What Banks Do Well (And Where They Fall Short)
I’m not here to bash banks. They serve a purpose.
If you want convenience and you’re banking there, walking into a branch feels easy. If you have complex business banking needs tied to your mortgage, keeping everything under one roof makes sense.
But here’s what banks do that frustrates me:
They treat new clients better than existing ones. That renewal letter you get? It’s rarely their best offer. They’re counting on inertia.
They push the five-year fixed rate as a one-size-fits-all solution. Sometimes a three-year makes more sense. Sometimes variable does. Banks love the five-year fixed because it’s more profitable for them.
They identify mortgages by interest rate alone. But your mortgage includes prepayment privileges, penalty calculations, portability options, and dozens of other features that affect your financial flexibility.
The Information Gap That Costs You Money
You don’t know what you don’t know.
When you only deal with your bank, you have no idea if their offer is competitive.
Except this isn’t a $100 purchase. This is hundreds of thousands of dollars.
According to Mortgage Professionals Canada, 45% of first-time homebuyers now use a mortgage broker. They report higher satisfaction than those who went directly to lenders. Brokers are becoming the provider of choice across Atlantic Canada.
When you walk into a single bank branch, you see one lender’s products. When you work with a broker, you see options from 20+ lenders across the entire market.
What a Comprehensive Mortgage Conversation Looks Like
When clients come to me, I don’t have a favorite bank. My favorite changes based on what each lender offers this week.
Every situation is different. You might be buying your first home or your tenth. You could be putting down 5% or 30%. You might be refinancing, renewing, or building from scratch.
A good mortgage conversation covers:
Rate options across 20+ lenders. Not just one bank’s offer.
Fixed versus variable analysis. Based on your risk tolerance and financial goals.
Term length strategy. Three-year versus five-year depends on your situation.
Prepayment privileges. How much can you pay down early? What are the limits?
Penalty calculations. If you need to break your mortgage, what will the cost be?
Your long-term plan. Are you staying in this home? Upgrading in three years? Building equity for investment properties?
The rate is important. The rate matters less than getting the right mortgage strategy for your life.
The Second Opinion
I encourage every person I speak with to get a second opinion. Get a third opinion.
You’re making a financial decision worth hundreds of thousands of dollars. Do your diligence.
If your bank has the best offer, you’ll sleep easier knowing you checked. More often, you’ll save thousands by looking beyond your branch.
The client I mentioned at the start? She got her second opinion. She saved over $12,000. She told me she wished she’d done this years ago.
You don’t need perfect credit to get a great mortgage. You don’t need to be a financial expert.
You need to know what’s available.
What This Means for You
If you’re renewing your mortgage, don’t sign the letter until you’ve compared the offer.
If you’re buying your first home, talk to someone who can show you options across the entire market.
If you’re refinancing or consolidating debt, understand that smaller lenders often have more flexibility than big banks.
The mortgage market has changed. Outstanding non-bank residential mortgages grew from $338 billion in Q3 2020 to $401 billion in Q3 2024. That’s a 19% increase.
More borrowers are learning what I’ve known for years: the best mortgage isn’t at the biggest bank.
The best mortgage is wherever you find the right combination of rate, terms, and flexibility for your situation.
You won’t find the answer by looking in only one place.
