Mortgage brokers can save you a lot of stress on your home loan. From reducing your monthly repayments, lowering interest rates, and doing the legwork, your broker could be your lifeline during the home buying process. Shopping around for the right home loan could take years off your life. With so many options on the market, how do you know where to look?
Read on to learn what mortgage brokers do and how they can help you find your next home loan.
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What is a Mortgage Broker?
A mortgage broker is an intermediary between homebuyers and lenders. As home loan specialists, their job is to match-make credit products with prospective borrowers. After match-making lenders with home buyers, the mortgage broker may also help the borrower in the application process.
Mortgage brokers will have a panel of lenders with a range of home loan products. If they connect you with one of their lenders, they might waive fees, such as loan application fees or provide special offers.
What does a Mortgage Broker do?
Mortgage brokers essentially play a match-maker between lenders and borrowers. Firstly, the broker assesses your financial situation. Before they can begin recommending home loan products, they need a clear picture of your creditworthiness and borrowing power. This helps the broker determine what type of home loan product will suit you.
Mortgage brokers will then offer a range of loan options, explaining the differences and why they might work for you. If you choose one of their recommendations, they will help you through the mortgage application process.
Bear in mind that mortgage brokers offer products from a panel of credit providers, not from every lender on the market. Therefore, it’s worth shopping around for a mortgage broker that specialises in your situation – e.g., local to your area.
Pros of Using a Mortgage Broker
Choosing a home loan is a big deal. Why should you trust someone else to do the job for you? Let’s look at the pros of using a mortgage broker to find the perfect mortgage.
1. Find you the best deal
Searching for a home loan is time-consuming. With so much jargon, different lenders, and credit services, finding a suitable mortgage could take days or even weeks. Even once you settle on a home loan product, there is no guarantee that it’s the best deal. Buying a house is stressful enough without the added bother of shopping around for a home loan.
A mortgage broker will do the job for you. Not only do they already know home loans and lenders like the back of their hands, a mortgage broker typically can get you a better deal. A good broker will negotiate interest rates, additional loan features, and ongoing fees to ensure you get the best loan arrangement.
Mortgage brokers are beneficial if you’re in a unique situation. For example, overseas borrowers, first-time buyers, or bad-credit score applicants might struggle to find home loan approval. Or, at least, they might only receive inferior offers from standard lenders. Mortgage brokers will help you find a specialist lender willing to offer competitive rates.
2. Will manage the paperwork
Purchasing a house is a very bureaucratic process. With contracts, documents, and all sorts flying about, home buyers might cry at the thought of more paperwork. Once you’ve chosen particular home loan products, your mortgage broker will fill out all the forms on your behalf. Not only will this free up time, but it will give you the peace of mind that it’s done correctly.
On top of this, they’ll explain any industry jargon or complex phrasing that might leave you unsure if you were to go it alone.
With a mortgage broker managing all the hard work, you’ll get your home loan pre-approval sooner. Once the home loan process is underway, you will be one step closer to getting the keys to your dream property.
3. They're independent
Home buyers’ main worry is that the broker will only offer biased recommendations. While brokers operate with a panel of lenders, they are independent advisors. They work in the buyer’s best interest.
Generally speaking, a qualified mortgage broker will have between 20 and 40 lenders on their panel. They don’t favour any particular lender. And remember, if you don’t like their recommendations, you can always walk away. Although, you might have to pay the broker a fee if you back out. But this is better than agreeing to a 30 year home loan you don’t want.
4. Expert brokers
Firstly, local mortgage brokers can advise you on the property market. Say you want to buy a house in Sydney. Your broker will do more than offer you loan options. They can offer recommendations on high capital growth suburbs and real estate agents.
Secondly, as we mentioned, mortgage brokers work with a financial institution to offer you the best deal available. However, the broker’s interests lay with the home buyer. Therefore, brokers put their expert negotiation skills to reduce the interest rate and other upfront fees lenders require.
5. Protect your credit score
When you apply for a mortgage, the lender runs a credit check. Hard inquiries into your credit score might cause it to dip a few points as it suggests you are taking on new debt. Usually, this is fine. The lender approves your loan, and your credit score bounces back after a few on-time monthly repayments.
However, if the lender rejects you after making a hard inquiry, your score won’t have a chance to recover.
Moreover, when you apply for a home loan or other products elsewhere, the next credit provider will see that you are trying to take on several new debts. From the lender’s point of view, this doesn’t look good. It suggests something negative about your financial situation, making it more challenging to find home loan approval.
Yet, if you enlist a mortgage broker, they will ensure you only apply to lenders who approve your home loan application. You won’t need to worry about damaging your credit score.
Cons of using a Mortgage Broker
Mortgage brokers aren’t for everyone. Why might you be better off doing it alone?
1. Untrustworthy brokers
Unfortunately, after the 2008 financial crash, the mortgage broking industry came under fire. However, Australian mortgage brokers have undergone a rigorous change. Qualified brokers now have to obey specific industry standards.
Organisations like the Mortgage and Finance Association of Australia (MFAA) and Finance Brokers Association of Australia (FBAA) ensure brokers maintain quality finance and mortgage broking. The Australian Securities and Investments Commission (ASIC) has ensured that any untrustworthy brokers have been convicted or left the industry.
To ensure you work with a professional mortgage broker, do your own research into their qualifications, experience, and online reviews. Accredited brokers with an Australian Credit Licence, and members of the MFAA and FBAA can help you get the perfect home loan for your situation.
2. Inexperienced brokers
Not all brokers have the right industry experience for your specific needs. This is especially true if you’re in a unique situation. Therefore, you must research your broker options.
Remember that lenders pay brokers commission if you choose their loan product. While most brokers will only recommend a relevant credit provider to you, some might be swayed by bias. Make sure you ask your broker how many lenders are on their panel and why they make a specific recommendation.
To work with award-winning mortgage brokers, contact Lendstreet today.
Do you need a Mortgage Broker?
While a mortgage broker can be a massive help throughout the application and settlement process, the wrong broker can also cause more harm than good. The real question to ask yourself is: Are you prepared to find a home loan yourself? If the answer is yes, then understand the level of research you need to do.
With nearly 100 banking companies and an immeasurable number of home loan products available, it could take you a long time to find the right one. Yes, there are also many mortgage brokers to choose from. However, deciding on a mortgage broker is a less significant decision. As we mentioned, qualified brokers work in your best interests.
If you’re at all unsure about the home loan application process, then speak to a broker.
How much do Mortgage Brokers charge?
The best thing about mortgage brokers is that they do not charge you a penny. Most brokers are generally paid a commission by credit unions when you choose their home loan product.
However, you may have to pay your broker a fine if you choose to look elsewhere after they have found you several home loan options. The fee could range from a few hundred dollars to the total price of commission they would have received if you chose the loan product. It’s a good idea to ask your broker about any cancellation fees before enlisting their services.
Can they shop around with every lender in Australia?
No, mortgage brokers have a panel of between 20 and 40 lenders at their side. They can only deal with organisations that they are accredited with, meaning they are authorised to act as a go-between with the lender and borrower. Moreover, some brokers may not work with lenders who do not offer them a commission.
Make sure you ask your broker which lending institutions they have on their panel.
What kind of licence should my broker have?
To ensure your broker is legitimate, ask for their Australian Credit Licence (ACL). This means that your broker operates under the National Consumer Credit Protection Act. Therefore, they cannot recommend poor options. Or rather, they must recommend products that are ‘not unsuitable’ based on ‘reasonable enquiries’ of your financial situation.
Your broker should either have their own Australian Credit Licence or authorised under an aggregator’s licence. Aggregators are umbrella companies responsible for paying the broker’s commission.
You should also check your broker’s testimonials and previous experience to ensure they are a good broker for you. A quick Google will reassure you of their reliability.
What questions should you ask a Mortgage Broker?
To ensure you team up with the perfect mortgage broker, you should ask them the following questions:
- Are you licensed?
- How many lenders do you deal with?
- What are your fees?
- Does the lender pay you a commission?
- What will the borrowing costs be?
- What’s your experience like?
Remember to always question your mortgage broker why they recommend a specific product. If a broker unpacks technical language and explains precisely why it might suit you, they’re probably acting in your best interests. If the broker struggles to define their recommendation clearly, you shouldn’t trust them.
Before offering products, the broker should thoroughly examine your financial situation, such as borrowing power. If they skip straight to the home loans, walk away.
Tips for finding a broker
Do you want to speak to a Mortgage Broker?
If you want quality advice from experienced mortgage brokers, speak to our team today. We can help you with everything from borrowing power to loan terms. More than half of Australian home loans are organised by mortgage brokers. Why not ease the burden of searching for a home loan and enlist a broker’s help?
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What are the duties of a Mortgage Broker?
Mortgage brokers act as go-betweens for the lender and borrower. Working in the home buyer’s best interest, brokers find a home loan deal with competitive rates suitable for their situation.
Is it worth getting a Mortgage Broker?
Mortgage brokers help match you up with the perfect home loan product. They can save you time, money, stress, and effort throughout the home loan process. Moreover, their negotiation skills will help you secure a better deal.
Why shouldn’t you use a Mortgage Broker?
The wrong broker can waste your time and potentially saddle you with a bad financial deal. To ensure your broker acts in your best interests, ensure they have an Australian Credit Licence and check reviews from previous customers.
How do Mortgage Brokers make their money?
Mortgage brokers are typically paid a commission by the lender when you choose their home loan product. Double-check how your broker makes their money before agreeing to their services to ensure you don’t get hit with the bill.
Are Mortgage Brokers financial advisers?
No, mortgage brokers are not financial advisers. A broker will help connect you with a suitable home loan. If you want professional financial support, you’ll need to contact a separate financial adviser.