Mortgage brokers work as go-betweens in the mortgage industry, helping people find home loans. Brokers write approximately half of all home loans in Australia – a trend that has increased in recent years. That’s a lot of home loans! But what are the pros and cons of using a mortgage broker? Is a mortgage broker right for you?
What does a mortgage broker do?
Typically, the process you’ll encounter when dealing with a mortgage broker is:
- The broker will complete an assessment of your financial affairs to fully understand your position.
- They will then put together a picture of your credit worthiness to determine how much they think you can borrow. This also gives them an idea of how easy it will be to get you approved.
- With all of this information, the mortgage broker can now work with you to determine the most appropriate loan.
- Once they know what loan will best suit your needs, the broker will offer you a variety of home loan options from the panel of lenders they act for.
So should you use one? Let’s have a look at the pros and cons.
There are some good reasons why you should consider using the services of a mortgage broker:
- They can save you time. A broker will typically handle all of the legwork for you. They will source different options, prepare paper work and liaise with the bank, to mention a few. Their inside knowledge and contacts can also help prevent you from wasting time with lenders that won’t lend to you. For example, your financial position might not be sufficient for their criteria.
- They can save you money. Brokers have access to a wide range of lenders and potentially access to better rates and deals than the general public. With the right inside knowledge and contacts, a broker may be able to offer you a home loan rate that’s lower than what you could get at a bank.
- Tailored solution. Assuming the broker has enough lenders on his panel, there will be a number of different loan options that they can suggest to you. With a wide range of choice, the broker should be able to find you a product that properly suits your needs.
- Expertise. For newcomers, the advice and guidance a good mortgage broker offers can be very valuable. The right broker should be able to explain all aspects of the process and the impact of each decision you need to make.
- It won’t cost you anything. Though the entire home-buying process, discussing options with a mortgage broker is one of the only stages where you’ll be able to access expert advice without having to pay for it. Brokers earn a commission from the lender they end up writing the loan with – therefore their services provided to you are ‘free’, in the sense that you don’t need to directly pay them any fees.
- Can assist people who find it difficult to get approval. Brokers spend so much time talking and developing relationships with lenders that they can have inside knowledge on which lenders will lend to whom. For people that usually find it hard to get finance through a major bank, a mortgage broker may have the know-how and contacts to recommend a product that will suit your circumstances.
There are also some potential downsides that you need to consider:
- Brokers get paid commissions from lenders. This isn’t necessarily a bad thing, although such a system could potentially lead to practices that result in advice that’s in the broker’s best interests– not the client’s. According to ASIC’s consumer website, ‘Brokers are not financial advisers and are not obliged to find you the best possible deal unless they specifically agree to do so’. Tip: ask your broker, ‘is there a better loan for me from your lender list which provides you with less commission?’
- Cheaper loans can sometimes be available elsewhere. There are online lenders out there who don’t pay broker commissions and as a result can offer some of the lowest rates on the market. Even if you are utilising the services of a broker, it’s always a good idea to do your own research as a comparison.
- Service quality can vary greatly. The level of service you get is really dependent on the broker; therefore you need to do your research. Meet different brokers, ask questions, and ask friends and family for referrals. You don’t need to ‘commit’ to a broker – keep your options open and move on if you’re not happy.
- Brokers act on behalf of lenders that pay them. As such, they may only show you products from a relatively small number of lenders, while excluding others that may have better deals. This might not give you a fair idea of the range of products that are suitable for you. Do your research and meet with a few before you decide.
Some tips to keep in mind when talking with brokers:
- Ensure the broker you choose has the qualifications and experience necessary to find you the best product possible.
- Ask how many lenders the broker deals with. There’s little point going with someone that only recommends products from two or three lenders. You could quickly compare far more products than that by yourself.
- Ask what their fees and commissions are. The question naturally leads onto finding out how much the broker will be paid by the financial institution. Its not a rude question and brokers who are members of the MFAA are required under the code of practice to disclose this information.
- Shop around and try a few brokers to find one you like.
Mortgage brokers can be great resources that will help save you time and hopefully money. As always, do some research for yourself so you at least understand the lending process. You’ll be better equipped to make good use of their services!