While both banks and brokers can help you get a great rate on a home loan, there are differences between the services they offer.
Navigating the home loan market can be difficult. With a myriad of lenders to choose from, it can be difficult to be certain you're getting the best deal. While a mortgage broker can help you sort through all the lenders in the market, there may also be advantages to going directly to a lender. Which one should you choose?
What does a mortgage broker do?
Brokers perform a number of tasks, from the moment you first seek them out until you are awarded your mortgage.
Firstly, a mortgage broker is responsible for assessing your situation and your creditworthiness. This will help him or her to develop a better picture of your chances of qualifying for a home loan. This assessment will also typically cover your income levels and ability to repay a mortgage.
Next, a mortgage broker will take your information and work to find a loan that meets your needs as closely as possible. Most brokers have access to vast databases of information on available lenders, allowing them to research your options quickly and effectively.
Brokers can also provide advice throughout the entire process. If you have questions about brokerage, or what your mortgage options are, contacting a broker can be very effective.
The advantages of using a mortgage broker
Mortgage broker Cliff Ferrer of 1st Street Home Loan Specialists in Sydney's Rose Bay explains that one of the best advantages to using a broker is the choice they offer.
"They have access and understanding of the policies of 20-30 lenders, so can find a suitable loan for a client without the client having to meet with multiple banks and try and become a home loan expert. More importantly, brokers are not aligned to one particular bank and work more as an agent for the client rather than the bank itself," Ferrer says.
Additionally, a good broker is well practiced in finding the best deals. They will know the nuances of the credit industry, and should be able to direct you to lenders where your credit won’t impact your ability to take out a mortgage. When it comes to seeking a mortgage via a bank, the broker can also advocate on your behalf, increasing your chances of success with the process.
Ferrer says many clients have the misconception that they will pay more through a broker, or that a broker will try to sell them on a higher rate in order to make a bigger commission. He says this is not the case.
"The truth is that you won’t pay more through a broker and in fact can often pay less. A broker isn’t paid more if the rate is higher, so it is in the brokers interest to get the best deal possible for the client," he says.
The disadvantages of using a broker
Despite the many benefits associated with using a broker, there could also be some disadvantages. Due to the sheer number of brokers out there, it can be difficult to discover which brokers are highly experienced, and which brokers are new. Ferrer says this often comes down to going with the recommendations of friends and family.
"I think the most common way to identify good mortgage brokers is by a friend or acquaintance who may have used that broker previously. It is also important to do a bit of basic research like see how long the business has been established, do they have a shopfront or office, etc. Clients should get some confidence that they are dealing with a broker who is established and won’t be here today and gone tomorrow," Ferrer says.
If you don't have a solid understanding of the finance and mortgage industry, it can also be difficult to judge what is a good deal, or when you might do better visiting a local lender. Using a mortgage broker requires a bit of personal research and understanding, although it’s certainly possible to gain this information.
What does a bank loan officer do?
Bank loan officers typically act in a similar way to brokers, although they work for one specific bank or lender. They are considered employees of the bank they work for, and often receive volume incentives when providing clients with loans.
If you already have great credit, are a customer of the bank, and have a stable income, you will most likely find a good rate through your bank. A loan officer can match you to the best loan product available within that specific bank. If you choose this option, and you are already a customer of the bank, don't be afraid to probe for a better deal on your mortgage.
The advantages of using a bank loan officer
As mentioned above, bank loan officers can be very effective for those who are coming from a good credit standpoint at the time they seek out a loan. Banks enjoy working with those who show a low risk for lending, because it is these individuals that they tend to make money from the most easily. Going through a bank loan officer can allow you to access a direct line to the very best deals at the bank or lender you choose to work with.
Bank loan officers are also extensively experienced in working with the lender, their policies and their loans. They can answer any questions you might have about the loan or lending process, ensuring that you fully understand what you are taking on. Further, they can often structure a loan to work with other bank-provided products you have already.
The disadvantages of using a bank loan officer
The disadvantages of sourcing your loan directly from a bank are mostly related to limitation. A bank loan officer has access only to the loans offered by the bank or lender through which they are employed. This can seriously restrict the options available to those who are not a direct customer of the lender already.
There are good reasons to choose a broker, and good reasons to choose to source your home loan directly from a lender. Carefully review your credit situation and preferences to decide upon which you prefer. Making the right choice the first time around will ensure that you end up with the best result possible in your situation.