Should you use a mortgage broker or go directly to a bank when looking for a home loan? When it comes to arranging a home loan, a mortgage broker can be your guardian angel or a devil in disguise.
The advantages of a broker are clear: they have access to multiple lenders with hundreds of loan options and they do all the shopping around for you.
If you have a small deposit or a poor credit history, brokers may be able to find you a lender when your own bank says no. There have been cases, however, of a broker falsifying a borrower’s circumstances to get a loan across the line and this generally ends in tears.
A broker may also devote more time to explaining the terms, operation and costs than a bank loan officer. Some brokers will rebate part of the commission they are paid by the lender; the industry suggests this isn’t a popular option but it’s worth asking the question.
Consumer advocate Choice says brokers can potentially provide a worthwhile service. “We have some concerns with mortgage broking, in particular around the perceived independence of recommendations, especially when there may be an incentive to push products from a particular institution,” says spokesman Matt Levey. He offers these tips:
- Check which lenders are on the broker’s list and ask whether any are usually preferred (and why).
- Don’t pay upfront fees before credit has been arranged.
- Find out how and what brokers will be paid for arranging your loan, including ongoing trail commissions.
- Ask the broker to explain different mortgage options and the financial reasons why a loan is recommended.
- Check the mortgage broker is a member of the Mortgage & Finance Association of Australia.
- Don’t sign anything you don’t fully understand; if you’re in doubt, seek independent legal advice.
- Don’t overdo it with loan applications. Making too many can impair your credit rating.
DO YOUR HOMEWORK
Before you approach a bank or mortgage broker, do some research yourself. Websites such as Ratecity.com.au and canstar.com.au provide comparative home loan interest rates for most lenders. Don’t overlook credit unions and building societies - they are not there to make a profit. Ask if you qualify for a professional package rate lower than the one advertised.
Sticking with your bank may be a good idea, especially if it is your business bank. If all your accounts are with one institution, you may get a better deal as the bank will be familiar with your circumstances and reliability.