Mortgage broker vs bank: which costs less in Toronto?
Checked against primary sources
Neither always wins. A broker can shop lenders your bank doesn't, which helps most at renewal and for unusual files. Banks can match quotes and offer relationship perks. The deciding cost is often the prepayment penalty: some lenders compute it from their posted rate, which on today's numbers claws back a discount of about 1.61%. Ask every lender which method it uses.
How do a broker and a bank differ, line by line?
| Broker (FSRA-licensed brokerage) | Bank (direct) | |
|---|---|---|
| Who regulates their conduct | FSRA under Ontario's mortgage brokerage law | Federal rules (FCAC) for banks; exempt from Ontario broker licensing |
| Lenders offered | Several; must disclose how many it used last year | One: the bank's own products |
| How they're paid | Usually a lender commission; must disclose the basis in writing | Salary and internal incentives; no Ontario compensation disclosure |
| Prepayment penalty | Depends on the lender you're placed with; ask whether its IRD uses the posted or contract rate | Some banks use the posted rate in the IRD; the method must be in your information box |
| Disclosures before signing | Ontario disclosures at least 2 business days before you sign | Federal disclosure (information box incl. penalty formula) |
| Renewal | The lender sends the renewal; a broker can re-shop it | Statement at least 21 days before renewal |
| Extras | Access to alternative and private lenders (Level 2) | Bundled banking perks, all-in-one credit lines |
Why does the penalty method matter so much?
FCAC explains that the interest rate differential can start from either the posted rate when you signed or your discounted rate, and that "your lender must tell you how they calculate". On today's Bank of Canada data the 5-year posted rate is 6.19% (week of 2026-10-28) against a typical 4.58% actually paid (2026-08): a 1.61% discount.
Worked example: about $565,787 left, 30 months to go, rates down a point. A posted-rate IRD (using today's 3-year posted 6.05% minus that discount) comes to about $16,125. A contract-rate IRD on the same mortgage: about $14,145.
Source: Financial Consumer Agency of Canada, Mortgage fees: prepayment penalties, effective October 15, 2025. Checked .
What does a lower broker rate save, if you keep it or break it?
$600,000, 25-year amortization, 5-year fixed. The bank charges 4.58% with a posted-rate IRD; the broker-sourced lender charges less with a contract-rate IRD. "Break" means at month 30 after rates fall one point.
| Broker rate | If you keep it 5 years | If you break at month 30 |
|---|---|---|
| 4.58% (same rate) | $0 | $1,980 |
| 4.48% (−0.10) | $2,874 | $3,449 |
| 4.38% (−0.20) | $5,746 | $4,917 |
| 4.28% (−0.30) | $8,616 | $6,386 |
Even at the same rate, the penalty method alone is worth thousands if you break. Run your own offers in the comparison tool.
When does going straight to your bank win?
- Your bank matches the broker's rate and terms (ask; quotes are negotiable).
- You want a product only your bank offers, such as an all-in-one line of credit tied to your accounts.
- You're confident you'll keep the mortgage to term, so the penalty method matters less.
- Relationship perks (fee waivers, rate discounts on other products) are worth more than the rate gap.
When does a broker usually win?
- At renewal, when the alternative is signing the letter you were mailed. You can switch lenders without the stress test on a straight switch.
- When there's a real chance you'll sell or refinance mid-term, and a lender with a contract-rate penalty is available.
- With self-employed income, a thin or bruised credit file, or rental properties, where lender fit matters more than a few basis points.
Frequently asked questions
Is it better to go through a mortgage broker or a bank?
It depends on the offers. Brokers can shop several lenders and often help at renewal or with unusual files; banks can match quotes and offer relationship perks. Compare the whole offer, especially the prepayment penalty method.
Do banks charge higher prepayment penalties than other lenders?
It depends on the method, not the type of lender. Lenders that compute the interest rate differential from their posted rate less your discount tend to charge more than lenders that use your contract rate. Your lender must tell you which method it uses.
Can my bank match a broker's rate?
Often it can. Rates are negotiable. Bring the broker's written offer and ask your bank to match the rate and terms.
Sources
- Financial Consumer Agency of Canada — Mortgage fees: prepayment penalties (effective October 15, 2025). Checked .
- Financial Consumer Agency of Canada — Code of conduct: mortgage prepayment information (effective September 24, 2025). Checked .
- Justice Laws — Financial Consumer Protection Framework Regulations (SOR/2021-181) (effective June 30, 2022). Checked .
- Government of Ontario (e-Laws) — O. Reg. 188/08: Mortgage brokerages, standards of practice (effective March 1, 2022). Checked .
- FSRA — Working with a mortgage professional (effective April 1, 2023). Checked .
- Financial Consumer Agency of Canada — Renewing your mortgage (effective October 15, 2025). Checked .
- OSFI — Uninsured straight switches exempt from the prescribed MQR (effective November 21, 2024). Checked .
Estimate, not advice. Educational estimate only, not financial, mortgage, tax or legal advice. Lenders, insurers and governments set their own rules and can change them; confirm with a licensed professional before you decide.