Picking a mortgage broker

THERE are plenty of ways to obtain a home loan.

You can walk into your nearest bank or lender, trawl through the options online and apply for a loan without leaving your seat, or seek out a mortgage broker.

But what exactly does a mortgage broker do? And why would you consider using one?

WHAT IS A MORTGAGE BROKER?

A mortgage broker is a financial adviser who specialises in finding home loans for their clients.

They crunch the numbers and highlight the option that best suits their client’s personal situation. Some also manage the application process on their client’s behalf.

According to Jeremy Fisher, managing director of Sydneybased mortgage brokers 1st Street, a mortgage broker prioritises your interests above all else and puts on the “customer hat” when researching.

“They’ll sit down with the customer and spend an hour understanding exactly what they want to achieve and what their plans are, and then obviously look to provide them with the most suitable lender or product, depending upon their circumstances,” he says.

WHAT DOES A MORTGAGE BROKER DO?

A mortgage broker is essentially a middleman between you and the lender. They assess your finances and borrowing power, and then come up with a list of home loans for you to choose between.

However, while they will pick options from a number of different lenders, they likely won’t consider all of them, as many brokers won’t work with credit providers unless they pay a commission.

Fisher says a good broker will not only determine how much you’re able to borrow from various lenders, but also the maximum amount that you should borrow, based on market trends, fluctuations, and if interest rates go up even 7% or 8%.

SHOULD YOU USE A MORTGAGE BROKER?

Armed with a detailed understanding of the market, mortgage brokers often help their clients find a better deal than they would if they simply walked into their nearest branch. But there are some downsides to using them, too.

Pros

1. Find you the best deal

It stands to reason that a person who lives and breathes home loans should be able to find a better deal or interest rate than someone who’s either searching for the first or second time.

2. Will manage the paperwork

Once you give the green light to one of the broker’s suggest home loan options, they’ll fill out all the forms required to get your loan pre-approved with that lender.

This not only frees up time, but provides you peace of mind, as enlisting the expertise of a mortgage broker will ensure that all the i’s are dotted and t’s are crossed.

3. They’re independent

As they will be at pains to point out, most brokers are independent, meaning they don’t favour any one lender, and will seek out the best possible deal or rate from the dozens of lenders with whom they’re accredited. Cons

1. Some brokers simply choose the lender that pays the most

Customers don’t pay their broker, lenders do. And so some brokers simply choose the lender that pays them the most, rather than the mortgage that best matches their client’s needs.

This payment system came under scrutiny during the recent banking royal commission, with Commissioner Kenneth Hayne recommending commissions paid by banks be replaced with upfront fees paid by the customer.

2. Switching brokers could affect your credit rating If you’re unhappy with a particular broker’s service and decide to take your business elsewhere, you may end up tarnishing your credit rating.

This is because each time a broker submits a loan application on your behalf, it’s sent to the credit bureau. Should they receive a high number of enquiries on your behalf, this will raise a red flag and affect your rating.