Mortgage broker vs bank – what’s better for you?

If you’re in the market for a home loan, you may be wondering whether it’s worth going through a mortgage broker, or approaching a bank directly. Here are some considerations that may help you decide.

In the home loan market, a mortgage broker essentially acts as an intermediary, connecting borrowers with home loan products from banks and lenders. When purchasing a home, you do not need to use a mortgage broker – you are free to research and compare loans on your own to find the best deal, and then approach a bank or lender directly. In the case of a refinance, you can even approach your existing bank or lender to ask about a more favourable deal. That said, mortgage brokers can have the knowledge and expertise required to get you a suitable deal on a home loan.

So when it comes to the question of bank versus mortgage broker, what difference can your choice make?

Are mortgage brokers better than banks?

The question of whether it’s better to get your loan via a mortgage broker  or go directly to a bank or another kind of lender will ultimately come down to personal preference. If you are not confident in your ability to search the home loan market and negotiate a good deal for yourself, you may decide that a mortgage broker is a preferable alternative. A mortgage broker can do a lot of the legwork for you when it comes to finding a home loan. They will likely have knowledge about a variety of loans available on the market, and may be able to recommend one (or a few) to you via their panel of lenders based on your circumstances. Brokers can sometimes also negotiate interest rates and other loan terms with lenders on behalf of their clients, so you could  potentially be offered a better deal than one you might have found yourself.

It is worth keeping in mind, though, that mortgage brokers do not work with every lender on the market. Moneysmart suggests checking if your broker is licensed to give you credit advice, and if you aren’t sure, you can ask them directly for details about their credit licence, or contact a professional body such as the Finance Brokers Association of Australia Limited (FBAA) or the Mortgage & Finance Association of Australia (MFAA) to check. There could be better deals out there than the ones their panel of lenders can offer. It is therefore advisable to do your own research into home loans, in case you can find a more favourable deal on your own. If you do, you may even find it preferable to approach a bank or lender directly rather than going through a broker.

Are mortgage brokers cheaper than banks?

Generally speaking, mortgage brokers do not charge fees to their customers. Mortgage brokers instead earn most of their income through commissions, which are paid by banks and lenders upon successfully referring a customer to them. They can also earn remuneration in the form of non-monetary perks offered by lenders, such as business trips.

There are a number of expenses associated with taking on a new home loan or refinancing, and these can range from break fees from your old lender through to conveyancing fees and any one-off or ongoing fees your new lender charges. However, you are likely to face these charges whether or not you go through a broker or approach a bank directly.

If you are seeking a home loan, you are unlikely to face any additional expense if you decide to go through a mortgage broker, and you will not be obliged to accept their recommendation. The question of whether it’s ‘cheaper’ to go with a broker could ultimately come down to the type of loan you end up getting, and how much you could potentially save in interest and fees over the course of the loan.

Is it easier to get a mortgage through a broker?

In general terms, the ease with which it may be possible to get a home loan will come down to your individual circumstances, rather than whether you go through a mortgage broker or directly through a bank. If you have a large deposit saved up, a steady income and a high credit score with no history of bankruptcies and defaults, then you may be more attractive to a lender than someone who does not have these things. If this is the case, applying for a home loan by yourself may be a relatively straightforward process.

If you have an irregular income, a low credit score or a very low deposit relative to the value of the property you are buying, a mortgage broker may be able to help you find suitable lenders and assist with the application process. Mortgage brokers have a statutory duty to act in the best interests of their clients when recommending loan products. If you are considering taking out a home loan with a high loan-to-value ratio, keep in mind that you may need to pay lenders mortgage insurance. Plus, be aware that you may pay higher interest rates and make higher repayments, with greater scrutiny on you as a borrower.

How do you choose a mortgage broker?

If you are looking to find and choose a good mortgage broker, there are a number of key questions you can ask to get a sense of who they are and how they do business. In a general sense, it is important to find out:

• Are they licensed?
• What experience and qualifications do they have?
• Do they have expertise helping borrowers with similar circumstances to yours?
• How many lenders do they deal with?
• What are their fees and commissions?

What are the pros and cons of using a mortgage broker?

Some possible pros of using a mortgage broker include:

• Brokers will generally have an understanding of the home loan market and access to a variety of loan options from their panel of lenders.
• Brokers may be able to help you understand the complexities of the home loan application process.
• Brokers may be able to assist in finding an appropriate home loan for you if your circumstances are unique, such as having bad credit or being self-employed.

Some possible cons of using a mortgage broker are:

• Brokers do not have access to every loan on the market, so there may be a better deal out than options they recommend to you.
• Even though brokers are bound by a statutory duty to act in your best interests, they are still paid by commission, so they may still favour a particular bank or lender.

If you are considering a mortgage broker, it can be a good idea to ask them how they receive their commissions and if certain lenders pay them more than others.

What are the pros and cons of going directly to a bank?

Possible pros of going directly to a bank for a mortgage include:

• Some banks and lenders do not work with mortgage brokers, meaning that if you do your own research into their home loan offerings, you might find attractive products that a broker would not recommend to you.
• If you are refinancing, you may be able to use your existing relationship with your bank or lender to negotiate a favourable rate, rather than moving to another lender.
• Given banks and lenders are the ones offering the home loans, they will likely have a deeper understanding of these products and be able to answer your questions more effectively than brokers, who act as intermediaries.

Possible cons of going directly to a bank include:

• There are so many available home loans from different providers on the market that it may be hard to know if you’re genuinely getting the best deal you can if you are navigating the market alone without a broker.
• A bank’s internal processes, including how quickly they process applications, can be slow. A broker may have shortcuts available to them and knowledge about which banks have efficient internal processes.
• A particular bank or lender could have an attractive deal available, but may be unwilling to lend to you because of your financial circumstances. A broker might be able to recommend an alternative lender who may be willing to work with you, saving you time and possibly getting you a better outcome from the application process.

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