Are mortgage brokers really worth it?
When it comes to taking out a home loan, Australian borrowers aren't lacking in options. There are well over 100 banks and other lenders currently operating on the market offering thousands of different mortgage products.
Sifting through that sea of options to find a suitable mortgage and then navigating the loan application process can be a daunting task though, especially for new buyers. That's part of the reason why many borrowers choose to employ the services of a mortgage broker to help them through that process.
In fact, more than two-thirds (69.3%) of new residential loans taken out in Australia between October and December 2022 were made through a broker, data produced by CoreLogic on behalf of the Mortgage and Finance Association of Australia shows.
So how can a broker assist with the process, how much do they cost and how can borrowers find the right broker for their needs? Here are answers to six common questions about mortgage brokers.
1. What services do mortgage brokers provide?
Rather than contacting a bank directly or researching different loan options, borrowers can utilise a mortgage broker to do the legwork for them explains Lloyd Edge, property expert and director of buyer's agency Aus Property Professionals.
"A mortgage broker, essentially, is a conduit between the buyer and the bank. Instead of someone going straight to the bank to get a loan, they can go to a mortgage broker who will have access to a whole lot of different lenders - quite often a panel of up to 30 different lenders.
"The first thing they really do is assess a client's needs, because everyone's going to be different. Some people will be employed full time, some people might be sole traders with their own business, and some people might even have had defaults in the past which means they have struggled to get a loan.
Brokers can then help steer borrowers through the actual application and approval process, and potentially assist with any hiccoughs along the way.
"They look at all the paperwork you would submit to a lender before an application and they can help you tighten it up and solve any problems before you come to the application stage which will hopefully help you avoid rejections or any back and forth with a lender," says Richard Whitten, home loans expert at Finder.
2. Do brokers always have access to the cheapest loans?
While brokers generally work with a variety of lenders, Whitten says that they won't necessarily be able to tap into the most competitive lenders and loans available.
"Brokers have a panel of lenders that compare a good chunk of the market, but what they don't always have is the small online lenders, credit unions or customer-owned banks who often are the ones that have the lowest rates of all. So with a broker, you might be missing out on a certain sub-sector of the lending market that can often have the best deals."
That's not to say that brokers can't help their clients save money on their mortgage in other ways though. For instance, Whitten says that a broker could help an owner, who has both investment and owner-occupier loans, structure them in a way to take advantage of any tax concessions available.
They may also be able to secure discounted interest rates which won't always be accessible to borrowers who approach a lender themselves.
"If they're well connected, brokers should be able to get a bit of a discounted rate for you or a more competitive rate than if you rang up the bank and tried to negotiate yourself," says Edge.
3. Can brokers speed up the loan process?
Nobody likes waiting in line, but the wait time on a home loan approval can be even more crucial if it means the difference between securing a property or not. So will going through a broker help make the process faster? Not necessarily.
"It does depend on the broker, but using one won't always speed up the process. In fact, the feedback that I've had from some clients that have just gone straight to the bank is that things have been approved a little bit quicker," says Edge.
"If a broker is well connected though, and they've got contacts and they know who to talk to, then the process can happen a lot quicker. More inexperienced mortgage brokers tend to be the ones that have their loans waiting in the queue with everyone else."
Whitten says that given their existing relationships with lenders, brokers will have a good sense of how quickly certain lenders might be able to process a loan - something that may be important for buyers in a hurry to finance a purchase.
"They might have a borrower who is rushing to get a loan together after winning at auction, and they might have multiple lenders who are suitable, but they know that for a two-week turnaround one particular bank might be ready for business right now and doesn't have a backlog of applicants. So they're quite good for borrowers on a tight deadline."
4. How much do mortgage brokers cost?
"Generally people don't pay to use a mortgage broker - their services are free because they receive commission from the bank. Now, there are some mortgage brokers that do charge a little bit by way of a retainer, but that's often then paid back to the client if they go through with the loan," says Edge.
"One misconception is that, because mortgage brokers generally get paid by the bank, the interest rate is going to be higher. However, that doesn't mean that you're actually paying for that in the cost of the loan. It's not like buying a property where the price is a little bit higher because the selling agent needs to get a commission."
So if brokers are being paid by lenders, how can borrowers be sure that their broker actually has their best interests at heart?
"I think buyers just have to do their own research and due diligence," says Edge.
"Referrals are really important here - so speaking to people that have used a particular mortgage broker before that they've been happy with. And then making sure that your broker is giving you a few loan options to consider. At the end of the day you want to make sure that you're given a fair option and you don't just want to be thrown towards one single bank just because the broker finds it convenient."
5. What is the alternative to using a broker?
A mortgage broker isn't going to be the right option for everyone though. Whether it's taking out a loan the first time, or refinancing an existing loan, some people will be happy to do the legwork themselves and according to Whitten, there are a couple of ways to go about it.
"You can stick with your current bank, which we normally don't recommend because you probably won't get the best deal, but your bank already has a lot of information on you which can make the process quite straightforward.
"You can also certainly invest a few hours in researching, reading and getting a sense of what's going on in the market, then comparing rates online with someone like Finder, finding something suitable and then going to a bank.
"And even if you do that research and end up going to a broker anyway, you'll still you have more information to judge the quality of what the broker is offering."
6. What questions should be asked before choosing a broker?
For those who are weighing up using a mortgage broker, both Edge and Whitten recommend that borrowers get answers to a few key questions key before signing on the dotted line.
- Is the broker licensed and a member of a professional body?
- How many lenders are on their lending panel?
- How many dollars' worth of loans have they written in the last 12 months?
- Do they specialise in any type of loan? For instance, if you're looking for a construction loan it may be worth finding a broker who specialises in those rather than residential mortgages.
- What kind of administrative team do they have behind them? A broker who manages everything themselves may have a slower mortgage pipeline
- Do they have positive online reviews from previous clients?
- If they recommended a particular loan, why that one? And are there cheaper options available?
In addition to those, here are some more questions for brokers suggested by ASIC's Moneysmart.
At the end of the day Edge says that it's worth at least considering using a broker, especially if the alternative is not comparing options and simply using your existing bank.
"I work with people who go straight to the bank and straight to a broker. But my general advice is that people should consider using a broker because they do give a lot more options than just going to a bank.
"Particularly in today's interest rate climate, it's definitely worth having that conversation with a broker to see if they can refinance your current loan to a better rate."
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