A mortgage broker is a professional who acts as an intermediary between the lenders and borrowers. Their role is to help borrowers find the right loan and loan products for their circumstances and assist with the loan application process. Borrowers love to work with mortgage brokers because they bring more choice of finance options whilst lenders love receiving business from mortgage brokers because they help attract new customers.
As a bridge between buyers and lenders, mortgage brokers work with a mixture of banks and non-bank lenders in order to source the right loan product(s) for you. Mortgage brokers are required by law to act in your best interests whenever they are providing professional home loan advice.
According to data from MFAA (Mortgage & Finance Association of Australia), mortgage brokers facilitated almost 70% of new residential home loans in Australia between January and March 2022, and industry bodies are expecting this number will keep increasing to 75% by 2024. This means more and more customers are opting to use the mortgage brokers now. Let’s understand how a mortgage broker can help you before jumping to a conclusion about whether to use them or not!
What does a mortgage broker do?
A mortgage broker will seek to understand your personal circumstances, analyse them, calculate how much you could borrow and then give you options that suit your situation. On top of that, they will explain to you the entire loan process, and associated costs with it such as interest rate, LMI (Lenders Mortgage Insurance), and any other fees.
They will apply for a home loan and help you through the loan application process and possibly the home buying process to help see it through settlement. In that sense, they are helping both lenders and borrowers in the loan market – lenders receive more business and borrowers obtain the right mortgage for their property.
A good mortgage broker with experience should:
- Properly understand their clients’ goals and requirements
- Have extensive knowledge of lenders’ lending policies
- Find out how much you can borrow
- Provide quality advice on the loan deals and options that you have available for your circumstances
- Explain loan features and associated costs
- Manage the entire process from application to settlement.
When to use a Mortgage Broker?
Once you have decided to enter into the property market and want to know more about home loan options and loan products that aren’t regularly advertised to consumers, then contacting a broker is a great first step.
Mortgage brokers are especially helpful if you have a unique borrowing situations such as:
- a bad credit history
- are self-employed
- have unusual employment
- are a non-resident
- require low-doc home loans
- require a commercial loan
- have had trouble in the past trying to get an ordinary mortgage
Liaising with a mortgage broker might be beneficial for you if any of the scenarios above (and more) describe you.
You may contact an individual mortgage broker or a mortgage broking company to seek suitable credit options for your personal situation.
Pros and Cons of Using a Mortgage Broker
Having a mortgage broker by your side will reap several benefits for you, as a customer. Brokers can provide you with mortgage options that would be unavailable to general customers or probably not have thought about it.
What are the Pros?
Saves You Legwork
Working with a mortgage broker can help you navigate through the grueling process of obtaining a home loan. Brokers will help you get all the required documents and they will do all the processing, liaise with the bank on your behalf and do other work thus saving you time and effort.
Better Access
Brokers know more than customers and have good relationships with a wide range of lenders compared with a few for any typical customer. So, depending on the personal situation of the consumers, they will provide various options for a home loan.
They also have special relations with the lenders (due to the volume they generate) and thus will be able to give you special competitive rates from lenders and features which are usually not given to an individual client.
Manage Your Fees
There are various fees on a home loan, such as loan application fee, originating fee among others.
A mortgage broker will be able to manage your loan terms and bring down the fees as much as possible depending on your financial situation. This could save you thousands of dollars over your mortgage period.
Convenience
One of the major reasons for using a broker is the service and assistance of mortgage brokers. Since the broker is well acquainted with all the home loan processes, required paperwork and other subtle details, using a well-informed broker will reduce turnaround time and be a lot easier for your mortgage journey.
Cons
Using a mortgage broker may have its share of disadvantages and risks when their interests clash with yours or if they do not properly understand your position. These could be:
Not always the best deal for you
Going to a mortgage broker generally means you can be comfortable about getting the best loan deal available in the market. However, there can be instances where a mortgage broker with limited knowledge or experience about certain lending scenarios may end up inadvertently deliver a sub-optimal outcome.
Misaligned interests
In some extremely rare cases, we have seen and heard of mortgage brokers recommending a loan that maximises their commission as opposed to providing the best outcome for you, the borrower. This is not a common practice because the majority of mortgage brokers seek to grow their businesses for the long term. This means they rely on repeat business and word of mouth, and most will ensure they operating in their customers’ best interests (not to mention if they don’t, they end up on the wrong side of the law).
Broker fees
Usually, there is no direct cost for using a mortgage broker; however, at times they might charge you a minimal fee for complicated loan scenarios or add other hidden fees. You need to be direct and ask them about such fees upfront. Mortgage brokers have a legal obligation to disclose all fees they charge to you.
Questions You should ask a Mortgage Broker
Before starting or committing to using the services of a broker, you should ask these questions to your broker. You may have answers yourself, especially after reading many articles on AirBroker, but the following questions may be a good starting point to test your potential mortgage broker:
- What are your credentials?
- How do you make sure I get the best possible deal?
- What fees are charged by you as a mortgage broker?
- What fees are charged by the bank/lender?
- Can I benefit more by going directly with my (existing) bank or other major banks?
- How can I find a good mortgage broker?
What are your credentials?
A mortgage broker has to get a Certificate IV in Finance and Mortgage Broking as a minimum requirement, and they may need a Diploma in Finance and Mortgage Broker to be accredited with some lenders. Also, licensed mortgage brokers are regulated by the ASIC and are regulated by the Mortgage & Finance Association of Australia (MFAA) or the Finance and Broking Association of Australia (FBAA). Also, they have to renew themselves annually in order to continue their broking services. If you want to verify yourself, you can do so by searching via ASIC under profession registers. With AirBroker we have done the job for borrowers by verifying each broker onboarding with AirBroker.
A follow up question to ask the mortgage broker is what industry experience do they have? It doesn’t necessarily matter if they have worked in the financial services industry at all. It comes down how well can they understand your circumstances, so sometimes having a mortgage broker who transitioned from an entirely different profession might be to your advantage as they know the ins and outs of your situation better.
How do you make sure I get the best possible deal?
Generally speaking, brokers are working towards borrowers’ best interest and looking for the best possible deals for their clients. However, the result may vary due to brokers’ knowledge and experiences. Brokers in general have their own methodology in terms of how to achieve the best possible deal. It is worthwhile to check with a mortgage broker what their methodology is in achieving the best possible result. There are no right or wrong answers in this; however, you may want to choose a mortgage broker to work with who you can echo the most. You want to understand the panel of lenders they have access to and the number of lenders they use from that panel. It is no use having 40 lenders on a panel if they only use 3 all the time. This could (but not always) mean that the mortgage broker might not be as familiar with other lenders’ policies. A very experienced broker will also know lenders’ policy exceptions and may utilise them to help you depending on your circumstances. Note, just because a lender has a policy exception, it doesn’t always mean you should take advantage of it as it may not be suited for your situation.
What fees are charged by you as a mortgage broker?
Most of the services of mortgage brokers are free of cost, unless said otherwise. Even in case of any fee or cost of the brokers, you ought to be made aware of those charges. Some fees make perfect sense for some brokers and their customers are willingly to pay, e.g., a refundable commitment fee. Check if there are any hidden costs for the broking services. It also depends if the mortgage broker is an independent mortgage broker or working as part of a franchise, there will be different fee structures between each broker.
What fees are charged by the bank/lender?
Banks and lenders have different types of fees that you may need to be aware of, e.g., application fee, origination fee, settlement fee, legal fee, valuation fee, monthly fee, account fee, annual package fee, etc. You may check with your mortgage broker about all sorts of fees that a bank or a lender will charge, and make a well-informed decision based on fees apart from the obvious interest rate.
Can I benefit more by going directly with my (existing) bank or other major banks?
Similar to some other questions, there is no straightforward answer for this question. However, an honest mortgage broker will not say a simple “no” as an answer because there are certain occasions that might benefit clients more if they directly work with a bank. However, having an experienced mortgage broker to look after your loan portfolio may benefit you for a longer run since banks do not value your loyalty as you would think of and brokers are there for you to avoid the “loyalty tax”.
How can I find a good mortgage broker?
Good mortgage brokers are everywhere across the country; however, you may still need to do a little bit of research to find them, and hopefully the one that you can echo with. Just make sure to check out their credentials and online reviews, usually available for above-the-par brokers. AirBroker is also doing the job for you to verify a mortgage broker, list their credentials, and provide verified genuine reviews.
Do I Actually Need a Mortgage Broker?
Using a broker has its enormous advantages such as saving time, comparing and finding the best possible mortgage loans, and making the mortgage application process easy and convenient. It could also lead you to potentially save thousands of dollars during the whole life of the loan as most mortgage brokers keep an eye on your mortgage loans and keep reviewing and negotiating for a better deal. However, do your due diligence at the beginning when first engaging with the broker is also crucial. For the rest, enjoy your journey with a mortgage broker. If ever considering a new mortgage broker to work with, check AirBroker for all verified mortgage brokers and their reviews.
