Mortgage brokers write more than half of all home loans in Australia, making it a multi-billion dollar industry. The Australian Mortgage Report 2020 from Deloitte suggests that mortgage brokers are most influential for millennials, which the report says is “a demographic likely to be taking out their first home loan”.
But what exactly do they do that a home buyer can’t do themselves through online research?
What is a mortgage broker?
A mortgage broker is a type of financial professional who specialises in helping their clients to find a home loan. Their job is to gather information about the needs of their clients and to suggest lenders and products that match those needs. Once they have helped their client to select a home loan, a mortgage broker may also assist the homebuyer with the application process.
What does a mortgage broker do?
A mortgage broker is essentially a conduit between you and the home loan providers they work with. Their first job is usually to assess your financial affairs in order to put together a picture of your credit-worthiness and borrowing capacity. This helps them to determine what type of home loan might be right for you.
They typically then suggest a variety of home loan options from the panel of lenders they act for. Mortgage brokers generally offer lending products from a number of different financial institutions, but not all of the lenders on the market, so keep this in mind before deciding. Your broker would typically then explain the differences between the loans they suggest to help you choose one.
What are some pros and cons of using a mortgage broker?
As a go-between for borrowers and lenders, mortgage brokers can play a useful role if you aren’t confident in your understanding of finance or the home-buying process. They may also offer a helpful service to borrowers with more complicated financial situations, such as someone who is self-employed or who works as a contractor and whose loan application may be more complex as a result.
It’s important to carefully consider the pros and cons before booking an appointment with a mortgage broker, and to check that the broker you choose has the qualifications and experience necessary to provide you with quality advice and support.
What are the pros of using a mortgage broker?
- A broker may be able to explain the financial aspects of buying a home to people who aren’t confident in navigating this process for themselves.
- A broker can suggest a range of products based on your situation, enabling you to compare several options, rather than simply going with a provider you already bank with, for example.
- If you don’t have the time to research home loan options yourself, a mortgage broker could do some of that work for you.
- Mortgage brokers are often free to use for borrowers, and instead make money by charging a commission to lenders.
What are the cons of using a mortgage broker?
- Mortgage brokers typically act on behalf of a limited selection of lenders with whom they have a commercial arrangement. This means you may not get a full picture of the products available to you, some of which may represent better value.
- Educational qualifications and industry experience can differ between brokers, and so too can the panel of lenders they deal with. It’s important to research your broker before agreeing to use their services.
- Using a mortgage broker may still be more time consuming for borrowers than researching options online, or dealing directly with a lender.
What questions should you ask a mortgage broker?
1. Are they licensed? According to Moneysmart, you should check that your broker is licensed to give you credit advice. You could ask your broker to give you details about the licenses they hold, or do an online check. Industry bodies representing mortgage brokers, such as the Finance Brokers Association of Australia Limited and the Mortgage & Finance Association of Australia may be able to assist you with finding an accredited broker.
Licensed mortgage brokers are regulated by the Australian Securities and Investments Commission (ASIC), which issues and enforces rules on how brokers operate. For example, new regulations due to come into effect from 1 January 2021 will require mortgage brokers to act in the best interest of the consumer if a conflict arises between the needs of the consumer and the lenders a broker works with. Mortgage brokers will also be required to reduce potential for conflicts of interest to impact the advice they give to their clients.
2. How many lenders do they deal with? Generally speaking, the more options a broker can offer you, the better. There may be little advantage to using a mortgage broker that recommends products from only two or three lenders. It could also be worth asking whether they have a bias towards any particular lender and if so, why.
3. What are their fees and commissions? Consider enquiring about how much the mortgage broker will be paid by the financial institution for referring your business to them. Do some lenders pay them more than others if they secure a sale, for example? It could also be worth checking how their commission will be structured. For example, will it be an upfront commission or one that is paid to them on a recurring basis for as long as you have the loan?
4. What will the borrowing costs be? While you may not be required to pay a fee to your broker, it’s important to understand the various costs you may incur when you take out a loan such as a loan application fee, a property valuation fee and lenders mortgage insurance (if applicable). These fees are applicable in addition to the interest charges that will apply to the loan. A mortgage broker should be able to explain how these costs will differ based on the various options they suggest to you.