The short version
- Brokers compare lenders for you and handle the paperwork, usually at no cost to you.
- By law, brokers must act in your best interests.
- Going direct suits people who've compared themselves and have a simple application.
Shopping around to get the best home loan is one of the key steps in any home purchase. Whether you are a first home buyer or you've done this all before, deciding to use a mortgage broker or make a direct application to a bank, is actually a critical decision. It could make or break your home buying plans.
For property purchasers, particularly first home buyers or homeowners doing their first refinance, getting approval for the best mortgage can be a nerve wracking procedure.
You don't want to go through the whole process of applying for a mortgage only to told that you won't be given pre-approval. Nor do you want to get too excited about a low advertised interest rate only to discover that the lender doesn't approve people who run their own business or people with your credit history.
There's a whole raft of things to consider, so having some experienced help from a professional broker or bank lender can make this part of the property process much less stressful.
But who should you turn to? Is it best to pick a good mortgage broker? Or is it easier to apply directly with your bank and hope for the best? People will have varied opinions based on their limited experiences with both routes.
We take a look at the pros and cons of mortgage brokers and direct bank lending representatives, to help you decide who you should turn to.
Applying with a mortgage broker
More than 80% of new home loans in Australia now go through a mortgage broker, according to the Mortgage & Finance Association of Australia, for a reason. People value choice. And they really appreciate getting expert service to not only choose the product but also do all the paperwork for them.
A mortgage broker negotiates on your behalf, dealing directly with banks and other lenders to assist you in securing a home loan. They will work with you through the loan process from start to finish, taking into consideration your specific needs and goals. A broker will assist you to work out what you can and can't afford to borrow and present you with options from a variety of lenders.
Brokers will also explain each of the loan products to you, in order to assist you in making the best choice for your future. The broker will then apply for your loan and manage the process on your behalf right through until settlement. They're essentially your mouthpiece to the bank and hold your hand (metaphorically) through the home loan process.
Since 1 January 2021, mortgage brokers have been subject to a legal obligation known as the Best Interests Duty when they provide credit assistance to consumers.
This legal duty requires mortgage brokers to act in the best interests of consumers, and to put their consumer's interests before their own, meaning that they can't recommend products that are not suited to consumers needs just because they earn more commission for one product over another.
Brokers must hold an Australian credit licence or be a credit representative of a licensee, and belong to the Australian Financial Complaints Authority (AFCA). Many also belong to professional bodies, either the MFAA or the FBAA, and receive ongoing training.
Pros
- The Best Interests Duty means that mortgage brokers must steer you towards a product that works for you, not the broker, even if that means the broker gets paid less.
- Access to a wide range of banks and lenders, so you can be matched with a home loan that suits your circumstances.
- Mortgage brokers know how to interpret bank lending policies and can explain the nuances of your application in order to get you approved.
- One point of contact through the process who can address any queries and concerns you may have.
- It's usually free to use a broker, who are paid a commission by the lender or bank after you've been approved.
Cons
- Your application will still be judged by the lender or bank, whose decision is final.
- There's no guarantee your application will be approved, even with the best of broker advice and service.
Applying directly with a bank
Approaching a bank directly for your home loan is worth considering, particularly if you have a good credit score and clean credit history, have a regular income in a stable job, and stable finances.
Banks have their own lending specialists who are trained to assist new customers navigate the application process. Some of them may even have been a mortgage broker before.
Pros
- It's easy to research what's available online. You can compare home loan rates from a range of banks and lenders on Finty, then go to the lender's website to begin the application process.
- Being an existing customer of the home loan lender for another product may assist in your application.
Cons
- Banks are bound by responsible lending laws, not the Best Interests Duty. They must make sure a loan isn't unsuitable for you, but they can promote their own products even if another lender's would suit you better.
- Product choice is limited to what the bank has to offer.
- You may find the application process and odds of getting to unconditional approval more difficult if you are not a salaried employee for a company. Self-employed business owners, casual workers in the gig economy, pensioners, etc. may struggle.
- Most likely you'll have more than one person to deal with during the process, including different call centre staff and mortgage lending personnel.
Which is better?
Applying for a home loan with advice from a mortgage broker or applying directly with a bank is a decision that depends on your personal circumstances, such as your financial stability, level of savings, and employment situation.
Whether you need someone to hold your hand through the process or you are a seasoned borrower, the best choice can be determined by weighing up the pros and cons of each lending experience.