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Mortgage broker vs a bank: what’s the difference?

Oct 1, 2020 | Home Loan Essentials

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Is it better to use a mortgage broker or bank for a home loan?

If you’re looking to take a big financial step in life – like buying your first home or getting an investment property – it’s important to get the right information for your financial situation. Should you go directly to the bank you’ve always been with, see a financial planner, or talk to a mortgage broker? 

Runway Finance Pilot and financial planner Paul Dunn says comparing a mortgage broker to a bank is like comparing the Qantas fleet to a light plane.

“Home loans and mortgages have many pros and cons that may or may not suit you. So why go to one bank when you can choose from them all with a broker?”

“A financial planner can look at your current scenario and build a plan to get to a certain point in time, but a mortgage broker will get you the money based on your financial position at that point in time and get you the loan you need for the property that you want.”

What’s the difference between a mortgage broker and a bank?

As the resident Flight Engineer at Runway, Kim Kershaw lives and breathes lending and says a good broker knows what it takes to find the right bank for your home loan application.

“I have access to 38 lenders, so automatically you’ve got choices, and no two transactions are identical. You might be self-employed and your partner is on a salary but he’s only been at his new job two months and he’s on probation. I can tell you straight up that 35 of those 38 lenders won’t offer you a loan, but here are the three that will.” 

“If a client is self-employed and their partner is not working but gets family allowance, we know which lenders will consider that loan, and some lenders will use the last two years’ income as an average for self-employed people and others take last year’s income plus 20%,” Kim said.

Mortgage broker pros and cons

Working with a mortgage broker versus a bank has plenty of advantages, including:

  • making your choice of bank or lender easier based on your circumstances
  • utilising a broker’s relationships to speed up the approval process
  • saving time and stress shopping around with different banks
  • getting personalised assistance to understand the different loan options and products (like offset accounts vs account fees)
  • no broker fees to be paid by you

“Responsiveness is so important, especially in this current COVID environment and through our relationships we can control our responsiveness and then manage the response from the bank. Response times of lenders direct to the client can be significantly extended, particularly with many bank staff working remotely. For example, a young client of mine has been trying to get one of the big four banks to do his finance for him for six weeks. After I got involved he got approval in two weeks and he still hasn’t heard from the bank,” Kim said.

Do mortgage brokers cost more?

Kim Kershaw: “No. The answer I give to clients about that is that the bank would prefer to pay a broker commission for the introduction of business than pay the full cost of employing staff to be home loan sales people; the cost of staff would be significantly more than the fees they pay a broker.”

As home loans become harder to get and competition for the lending dollar increases, the popularity of brokers is growing, and it’s estimated that more than 50% of home loan business is introduced by brokers as consumers start to understand all of the advantages of working with a broker.