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What does a mortgage broker do?
A mortgage broker acts as a bridge between borrowers and banks, taking care of the paperwork involved in purchasing a home.
Put simply, mortgage brokers help you secure the best finance deal from their panel of lenders. To achieve this, brokers will usually recommend a handful of products based on your circumstances and financial goals.
Pros of using a mortgage broker
Here are some advantages of using a mortgage broker:
1
Expert advice and guidance
Brokers are knowledgeable professionals who can guide you through the complex process of obtaining a mortgage. Whether you're a first-time buyer or looking to refinance, they can explain different loan options, help you understand the fine print, and offer personalised advice tailored to your circumstances.
2
Access to multiple lenders
Mortgage brokers have access to a wide range of lenders, including major banks, credit unions, and non-bank lenders. This variety allows them to find loan options that best suit your needs and financial situation, potentially securing better terms and rates than you could find on your own.
3
Save time and effort
Instead of spending hours researching lenders and comparing loan products, a mortgage broker does the legwork for you. They streamline the application process, handle paperwork, and negotiate with lenders on your behalf, saving you time and reducing stress.
4
Negotiating power
Due to their relationships with lenders and the volume of business they bring, brokers may have leverage to negotiate better deals on your behalf. This can result in lower interest rates, reduced fees, or other favourable terms that may not be available to individual borrowers.
5
Continued support
A good mortgage broker doesn't just disappear after your loan is approved. They can provide ongoing support throughout the life of your loan, answering questions, assisting with any issues that arise, and even helping you reassess your mortgage as your financial situation evolves.
Cons of using a mortgage broker
Here are some disadvantages of using a mortgage broker:
1
Potential for conflicts of interest
In the past, there was a potential conflict of interest that could affect the recommendations brokers provide, given they generally earn commissions from lenders. In 2020, however, the Australian Securities and Investments Commission (ASIC) introduced the ‘Best Interests Duty’. Now, mortgage brokers can’t suggest a product they’ll earn a commission from without proving it’s the best option for their client.
2
Not all lenders work with mortgage brokers
While brokers have access to a variety of lenders, not all lenders work with every mortgage broker. In fact, some lenders do not sell through brokers at all, while others have exclusive agreements or preferred partnerships with specific brokers, limiting your options and potentially excluding lenders that could offer more favourable terms. This restriction can narrow down your choices and may not align with your preferences or needs.
3
Limited availability and attention
Mortgage brokers often handle multiple clients at once, which can result in delays in communication or response times. If a broker is stretched thin with numerous clients, it may impact the level of attention and personalised service they can provide to you.
4
Loss of direct control
When you use a mortgage broker, you're entrusting them with a significant financial decision. This means you give up some direct control over the process, which may not sit well with borrowers who prefer to have hands-on involvement in every step of securing a mortgage.
5
Limited scope of service
While brokers can offer valuable assistance with finding a mortgage, their expertise may not extend to other financial products or services. This means you may miss out on holistic financial advice that considers your entire financial situation and long-term goals.
How to identify a good mortgage broker
A skilled mortgage broker will listen to your needs and address any concerns you may have during the home buying process.
They will confidently recommend a range of products based on your circumstances and financial goals. Additionally, a good broker will update you every step of the loan application journey, providing advice where necessary.
Most mortgage brokers will have years of experience either as a broker or within the financial services industry. This enables them to identify which lenders and products are most appropriate to your needs as a borrower, as well as the typical turnaround times for applications. This is very important if you need to secure finance fast for a desired property.
Furthermore, if you’re a self-employed borrower or have bad credit, a good mortgage broker shouldn’t waste your time recommending lenders with stricter borrowing criteria. They’ll also likely advertise any awards they’ve won, along with positive reviews from previous clients. Reading customer reviews is a great way to identify if a broker has experience dealing with people in situations similar to yours.
Lastly, brokers should hold either a Certificate IV in Finance and Mortgage Broking or a Diploma of Finance and Mortgage Broking Management and be a member of the Finance Brokers Association of Australia (FBAA) or the Mortgage and Finance Association of Australia (MFAA). These are the leading national associations for mortgage brokers in Australia whereby members adhere to a code of ethics to ensure consumer trust and confidence.
Should you use a mortgage broker in Australia?
The short answer: it depends. If you lack confidence or are stretched for time, engaging with a mortgage broker can be worthwhile. For example, if you’re a first home buyer and aren’t across the government incentives available in your area, a broker will be able to lay out all of the information to you.
On the other hand, if you have experience buying property as an investor, or you’re confident searching the market alone, then using a broker may not be necessary.
Using a mortgage broker will ultimately come down to you as an individual and how complicated your needs are. Thankfully, there are thousands of brokers across Australia should you decide they are right for you. Most brokers today are also tech savvy, meaning they can efficiently communicate with you online and over the phone.