What is a Mortgage broker?
“A mortgage broker is an intermediary between the borrower and the banks or lenders. Mortgage brokers usually specialises in home loans and other loans for individuals where as a finance broker specialises in business or commercial loans. A mortgage broker can help you compare the suitability of different mortgages to find a one that is suitable for you. Your mortgage broker then negotiates with banks or other lenders on your behalf to arrange your loan and manage the process through to settlement.”
Why use a mortgage broker?
“Your home loan or mortgage is probably the biggest expense you will ever have. Differences in the rates, fees and features between mortgages can add up to thousands of dollars over the life of the mortgage. The best mortgage broker has access to a wide range of lenders and loans. Therefore, using a mortgage broker can make a big difference to your financial situation.”
What to look for when choosing a mortgage broker
There are some key things that you should consider before choosing a mortgage broker:
- Does the mortgage broker have access to a wide range of lenders?
- Is your mortgage broker experienced?
- Does the mortgage broker specialise in the type of loans that you are looking for?
- Is your mortgage broker independently owned or owned by a bank?
- Is your mortgage broker company a one man band, big brand or boutique brokerage?
- Does your mortgage broker company have a local broker option?
Does the mortgage broker have access to a wide range of lenders?
If the mortgage broker only has access to a smaller number of lenders then this will limit your choices. Look at the mortgage brokers lender panel to see which lenders they have access to. With more choice of lenders and loans there is a greater chance that the mortgage broker can find a loan that meets your requirements and has a competitive interest rate, fee and feature package.
If the mortgage broker has less than 30 lenders on their panel then this is really limiting your choices and you should look elsewhere for a mortgage broker.
Is your mortgage broker experienced?
With experience comes knowledge and understanding. A mortgage broker with a good knowledge and understanding is more likely to get you a good result.
However, ‘experience’ is not just about years in the job. Not all people learn at the same rate, some people have drive and determination whilst others are lazy looking for the easy option. I would take a less experienced but determined mortgage broker who will explore every avenue to get you the result you want over a lazy ‘old hand’ who has been doing it for years and is tired of it and only wants the easy option.
Furthermore, what type of experience does your mortgage broker have? How much experience does the mortgage broker have is your type of finance? See the next part.
Does the mortgage broker specialise in the type of loans that you are looking for?
When mortgage brokers specialise in a lending area/type generally this results in a better result for you as the borrower. Because they see more clients with circumstances similar to yours their knowledge should be better. They will know how to get these types of loans approved and increase the chance that your loan will also be approved. These specialists will also generally get you a better loan package (interest rate, fee and feature) as they know which lenders have the good options.
For example, if you are self employed and looking for a mortgage broker to help with your home loan you want to use a mortgage broker that understands the options and requirements for self employed people.
Some mortgage broker companies will have all of their mortgage broker specialise on only one type of lending. For example: lending to property investors. However, this also can be a disadvantage to the borrower as they will not be focused on the bigger picture as the investor may also be a professional (e.g. medical doctor) that qualifies for special concessions from some lenders. These other factors may mean that a different mortgage broker with different specialisation will be a better option. A mortgage broker company with brokers with different specialisations can usually deliver a superior result.
Is your mortgage broker independently owned or owned by a bank?
Some mortgage brokers are owned or part owned by major banks. These mortgage brokers usually only have a small number of lenders on their panel (usually less than 25 lenders) they may also not publicise their lender panel due to this. This can mean that there is a greater chance that more loans will be go to the big bank that owns them. Don’t be fooled, the real money from mortgages gets made by the banks and lenders not the mortgage broker. The big banks are making billions of dollars in profit and they don’t want that to stop!
By using a mortgage broker that is independently owned, (instead of a mortgage broker that is vertically integrated with or owned by a bank) you can increase your options. This does not mean that if a big bank is a good option for you that the independently owned mortgage broker will not recommend it. What is does mean is that when there are other lenders that could better meet your needs you can also choose from them.
Is your mortgage broker company a one man band, big brand or boutique brokerage?
This is similar to the issue mentioned above “Is your mortgage broker independently owned or owned by a bank?”. The big brands are generally owned by the big banks but there is also another problem here. These big brands with 1000s of mortgage brokers generally take anyone who has passed the minimum qualification and compliance requirements. This means that if a fresh new broker without much experience lives near to you that is typically who you will get when you ask for a broker from one of these ‘big brands’.
The ‘one man band’ broker business can also have problems. We all know that a good team works better than a lone individual. As a lone individual it is difficult to keep up with all that is happening in the complex world of finance. A team of mortgage brokers that share information and experience can raise the knowledge and result in better results for all of their clients.
Boutique mortgage brokers, who have a small group of experienced professionals including specialists and a network around Australia (to ensure local knowledge) can give you a superior result.
Does your mortgage broker company have a local broker option?
Using a local mortgage broker is NOT always the best option. As mentioned above under “Does the mortgage broker specialise in the type of loans that you are looking for?” using a specialist will generally give superior results. However, if you don’t have a very unusual circumstance (and don’t need a specialist in a certain type of lending) and you want to meet face to face with the mortgage broker to talk through how mortgages work etc.. a local option can make a difference. This is can be particularly important for first home buyers who don’t know the mortgage or home buying process and value a face to face meeting to get an understanding and ask questions. Having local brokers even if no face to face meetings are required can often mean that local knowledge (about mortgage requirements such as postcode lending limitations, or the buying process) is there with the broker when needed.