Are you currently shopping for a home loan? Are you constantly thinking about the mortgage broker vs bank debate? If you are, don’t worry, you’re not alone.
Many potential borrowers ask the question, “Why use a mortgage broker instead of a bank?”. Whether you’re a first-time home buyer or a homeowner looking to refinance, your goal is likely to find the best rate and the lowest fees for your loan. So, of these two choices, which one should you gravitate towards?
Mortgage Broker Vs Bank: Who Should You Turn To?
In the past, the majority of Australians used to approach their local bank when they needed a loan. These days, this is no longer the case. According to research from the Mortgage & Finance Association of Australia (MFAA), mortgage brokers were known to have assisted with 71.7% of mortgages in the third quarter of 2022, surpassing the 70% mark for the first time ever.
Before you decide on what’s best for you, however, you should first know the answers to a few pertinent questions associated with the mortgage broker vs bank conundrum. These questions include:
- What is a mortgage broker?
- Why use a mortgage broker instead of a bank?
- How much do mortgage brokers charge?
- Who has access to the best mortgage broker vs bank deals?
Mortgage Lender Vs Mortgage Broker Vs Bank
When applying for a home loan, you essentially have 3 options: a mortgage lender, a bank, or a broker. They’re all different, so it’s important to know exactly what each one can offer you. To help you out, here are some things to know about each option:
Bank
A bank can also be referred to as a direct lender. This means they’re a financial institution that originates, processes and funds loans themselves. Banks these days offer a range of products and services in addition to home loans, including everyday transaction accounts, savings accounts, personal loans, business loans and credit cards. Banking companies can also sometimes offer insurance and superannuation products.
Mortgage Lender
This is a non-bank specialised lender that caters for special needs and circumstances. They are direct lenders, but they don’t offer other financial services, like credit cards. A mortgage lender typically offers home purchase and refinance loans. They can be more flexible with “outside-the-box” applicants, like those with lower credit scores or larger loan amounts.
Mortgage Broker
While most people are familiar with banks and non-bank lenders, many still ask, “What is a mortgage broker?”. A mortgage broker is an accredited professional that works for the customer to find them the best deal. The role of a mortgage broker is to source the best loan for you from a range of banks and other financial institutions.
What Is a Mortgage Broker and What Exactly Do They Do?
A mortgage broker’s job is to help people find and secure the right home loan for their needs. Independent mortgage brokers do not work for a bank, and they generally do not charge the customer a fee for their service.
Here’s a breakdown of what the process typically looks like when working with a mortgage broker:
- Initial consultation with the borrower.
- Research and recommendations.
- Assistance with the mortgage application.
- Follow up and direct communication with the lender.
- Settlement of the home loan.
Unlike a bank or a mortgage lender, brokers work for you. Their goal is to help you achieve the best possible loan to suit your situation.
Mortgage Broker Vs Bank: 5 Common Misconceptions
When applying for a home loan, some common misconceptions can work against you in your efforts to find the best loan. Here are five of them.
1. Isn’t it easier to get a mortgage with your bank?
Not really. If you’re a first-time home buyer, you will still have to go through the same process as you would with any other lender. They will have your banking records on file, but none of the other necessary documents required for your application.
If you’re refinancing with your existing bank and they are the best deal out there, then the process can be fairly straightforward to refinance with your bank.
The difficulty is in determining whether or not your bank is offering the best loan product to suit you. To accurately compare your bank’s mortgage offerings with other products, you’ll need to research the market and approach other lenders directly to ask about their available offers. You’ll then need to compare all of the available products, keeping in mind interest rates, loan terms, fees, features and eligibility.
2. Doesn’t it cost more to use a mortgage broker vs bank?
Many borrowers are under the impression they’ll have to pay an out-of-pocket fee to use a mortgage broker. The reality is that many mortgage brokers earn a commission from the lender that provides the loan, rather than charging a fee to the borrower. This commission is typically a percentage of the loan amount and is paid by the lender upon settlement.
Some brokers may charge a flat fee for their services, which can vary depending on the loan amount and complexity of the transaction. This fee may be charged upfront or upon settlement, so make sure you enquire about their payment policy and other concerns you have in advance.
At Sunshine Coast Financial Solutions, our policy is to help you at absolutely no cost. We receive our commission from the lenders after the loan settlement is completed.
3. Don’t I need a bank to fast-track my home loan application?
When it comes to fast-tracking a mortgage application, it often pays to have a broker working for you. They know the intricacies of various lender policies and can help you swiftly and accurately navigate the application process. A broker will also have pre-existing relationships with the various financial institutions on their lending panel. This enables them to follow up and negotiate on your behalf.
4. Won’t banks have access to the best deals?
Banks will often promote excellent mortgage deals. But by approaching a bank directly, you’ll only have access to their limited range of products. In contrast, a broker has access to all of the best deals currently available from their broad panel of lenders. This enables them to compare deals, weigh up the pros and cons of various products and identify which home loan will offer the best solution for the specific needs of a borrower.
5. Won’t mortgage brokers offer loans with higher interest rates?
There’s a mistaken belief that brokers offer loans with higher interest rates compared to banks. However, this isn’t the case. Experienced mortgage brokers can negotiate directly with lenders to secure competitive interest rates for their clients. They’re able to do this by leveraging their pre-existing relationships with multiple lenders. This means that working with a broker could give you access to competitive terms and rates that wouldn’t be readily available if you approached the lender directly.
Why Use a Mortgage Broker Instead of a Bank?
Are you still wondering, “Why use a mortgage broker instead of a bank?” If so, consider some of the benefits that come from using a mortgage broker:
- Access to a wide range of loan products from multiple lenders.
- Thorough knowledge of the home loan process and industry regulations.
- Ability to compare different loan options and negotiate on behalf of the borrower.
- Personalised service and tailored advice to meet individual circumstances.
- Assistance with paperwork to streamline the application process, potentially saving time and stress.
- Increased likelihood of loan approval due to understanding lender requirements and eligibility criteria.
- Potential cost savings through waived application fees or other special deals negotiated by the broker.
Mortgage brokers work with a variety of lenders and assist customers with a wide range of financial situations, which means they have a lot of valuable information. They also have access to the most up-to-date products and rates available on the market. So, you can go to one mortgage broker for a fast and accurate comparison of multiple loan products. You’ll also gain unbiased advice that can help you understand interest rates, fees and lending criteria, to help you find the best home loan for your situation and financial goals.
Mortgage Broker Vs Bank: Best Interests Duty
You can rest easy when you use a mortgage broker because they’re governed by Best Interests Duty Legislation, a legal obligation introduced in the National Consumer Credit Protection Amendment (Mortgage Brokers) Act 2019.
The Best Interests Duty (BID) is a legal requirement for mortgage brokers to always act in the best interests of their clients when providing credit assistance. This is undoubtedly one of the biggest advantages of using a mortgage broker, as it requires brokers to put the client’s interests ahead of their own. This includes providing appropriate advice, recommending loans that are suitable for the client’s needs and disclosing any conflicts of interest that may arise during the transaction.
- Bank vs broker: Mortgage brokers are obligated to act in the best interests of their clients, whereas banks are not. Banks may prioritise their own interests, such as selling their products, over the needs of the borrower.
- Mortgage broker vs bank: Mortgage brokers are required to consider a range of factors when recommending a loan, including the borrower’s financial circumstances, objectives and needs. They also must provide a reasonable basis for their recommendations, which means they have to do thorough research and analysis before recommending a product.
Should I Use a Mortgage Broker?
If you ask us, the choice of using a mortgage broker vs bank is clear. However, borrowers should carefully consider their options and do their own research to determine what will work best for them. Think about your circumstances when asking yourself, “Why use a mortgage broker instead of a bank?” If you want a simple process, with minimal stress that gets you access to the most competitive loan products to suit your situation, then it’s worth contacting an experienced mortgage broker.
Talk to Sunshine Coast Financial Solutions for Expert Advice
At Sunshine Coast Financial Solutions, we pride ourselves on providing personalised, trustworthy service to all of our clients, whether they’re first home buyers, refinancing or investors. We have access to a broad range of loan products and can provide expert advice to help you navigate the home loan process with confidence.
If you’re unsure whether using a broker is right for you, we encourage you to reach out to us and schedule a consultation to discuss your options.
