Mortgage Broker Vs Bank: What’s the Difference?
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If you’re looking to finance a property, there are two ways to go about it. You can approach a lender directly or go through a mortgage broker to secure your home loan. The home loan process can be challenging enough without making the additional decision of whether to go through a mortgage broker or bank.
So, follow our guide to the mortgage broker vs bank debate, including the pros and cons of each and how to decide to finance your property.
Types of Mortgage Lenders
Let’s start with the different types of credit providers with whom you can receive a home loan.
- Direct lenders
A direct lender, otherwise known as a bank, is a financial institution that processes and funds the loan themselves. The organisation that you are in contact with are the ones who lend you the money. Direct lenders don’t just have to be big banks; however, they can also be credit unions and mortgage companies.
- Mortgage brokers
On the other hand, the mortgage broker is a middleman between the lender and the customer. They work with multiple lenders to help you compare lenders and mortgage options.
The route you go through to finance your home depends entirely on your situation. For the most part, obtaining finance can be overwhelming, you’ll save time and money going to a mortgage broker to do all the research for you.
If there is anything complicated about your financial situation – e.g. you’re living abroad or have a low credit score – then a good mortgage broker will offer helpful financial advice and help you get good loan terms.
Get a free Australian mortgage assessment today.
What Is the Difference Between a Mortgage Broker and Bank?
While mortgage brokers and banks differ as institutions, they also process loans differently. There is a lot to consider, from assessing your payslips and documents to specialising in unique situations.
Compensation is one of the main differences between mortgage brokers and banks. A mortgage broker is paid by commission. Often, they are paid by the lender, so their services to the customer are free. The figure they are paid is based on the total loan amount, which might influence the broker’s professional advice and research.
On the other hand, banks are compensated by fees and charges paid by the customer. The bank will also make money off of the interest earned on the principal loan amount, ongoing fees, and other charges that are made throughout the loan term.
You aren’t obligated to go through either a broker or direct lender. It’s best to shop around, consider your specific circumstances, and speak to banks and brokers before making your decision.
How Do Brokers Work?
Mortgage brokers either work with a panel of lenders or are ‘whole of market’ brokers. All brokers should have an Australian credit licence, are lending specialists, and can offer expert advice on home loans.
Those who work with a panel of lenders are likely to specialise in a specific kind of financial situation. For example, Odin Mortgage are experts at finding home loans for expats and foreign nationals. You might get a smaller range of lenders; however, the ones that you are recommended will be most suited to your position.
‘Whole of market’ mortgage brokers don’t work with specific lenders but with a broader portion of the market. They are less likely to have the expertise to find you the best deal.
Mortgage brokers take you through the whole process of your mortgage application and home purchase. They’ll consider your financial circumstances and personal objectives to offer a variety of loan products that suit your needs.
How Do Banks Work?
Banks do a lot more as an organisation than mortgages. Therefore, while they might offer suitable products for a straightforward loan application, they cannot specialise as a broker can.
If you approach direct lenders to apply for a home loan, they will only be able to offer you advice on their own products. For many borrowers, the bank’s own products are suitable. However, for anyone with slightly different circumstances, the bank might not be able to offer a great deal.
Plus, many banks are under tighter lending restrictions for foreign nationals and Aussie Expats. In recent years, the Australian Prudential Regulatory Authority has imposed harsher regulations about who can borrow money to buy a property and what they can borrow. In response, many banks decided it was not worth their time to process home loans for Aussies living abroad.
As a result, expats usually turn to specialist mortgage brokers to seek professional advice.
The Advantages of Using a Mortgage Broker
Saving you from doing the legwork, using mortgage brokers is an excellent way to save yourself time, money and effort. Rather than spending your time applying to direct lenders or a range of different financial institutions, you apply to one broker who contacts other lenders on your behalf.
The broker will do the research, shop around, and organise the application process for you. Generally speaking, brokers have plenty of experience in the mortgage industry.
They have many contacts with multiple lenders and the expertise to find a credit provider with the right lending criteria to suit your situation. Plus, they often have strong relationships with lenders and can provide reduced rates and better deals than a direct lender.
Do Mortgage Brokers Get Better Rates?
Not only do their close connections often get you better interest rates, but mortgage brokers also have strong negotiation powers.
While the bank will try and give you reasonable interest rates, they tend only to do so to low-risk borrowers, such as those with a good credit score, substantial deposit and stable income. Unfortunately, most banks consider expats and foreign nationals high risk – especially if your primary source of income is in a foreign currency.
Whereas brokers have access to a far more comprehensive range of home loan products. Therefore, they are able to source a better deal and lower interest rates than the bank.
Get a free Australian mortgage assessment today.
Do Brokers Give You More Choice?
Australia is home to hundreds of different lenders. If you approach a direct lender, you only have access to their limited range of products and policies.
If you were to apply to a bank directly, but you didn’t quite meet their lending policy, you would miss out on their home loan deals. For example, if your foreign income isn’t accepted by that bank, you will have wasted time applying. The bank loan officer will encourage you to apply anyway without knowing their lending policy inside and out.
It might take a long time to apply to many different banks before you find one that offers you favourable terms.
On the other hand, if you find a good broker, they will supply you with the choice of hundreds of different products from lenders across Australia. Also, they will only submit your home loan application to a specific lender that will likely approve your loan.
Are Mortgage Brokers Credit Experts?
As mentioned previously, banks are busy organisations with many different priorities. Therefore, bank loan officers don’t necessarily know how to handle complex loan applications or how to properly assess them. It can take a long time to process your application, and you might be declined after waiting.
Often, home loan approval is based on the strengths highlighted in your application. Mortgage brokers are experts at knowing what lenders want to hear. They can identify the mortgage lenders’ policies and negotiate exceptions while framing your situation in the best possible light.
Plus, a good mortgage broker will have many years of experience in the industry. As a result, they’ll be able to offer expert advice about your home loan options and assist you through the entire loan process. You can ask them questions about any industry jargon or unexplained terms – such as what is a comparison rate?
Is It Expensive to Use a Mortgage Broker?
Generally speaking, most credit assistance services from a mortgage broker are free. In fact, many home buyers actually pay less to use a broker rather than going straight to a bank lender.
Most brokers don’t charge a brokerage fee from the customer as they get paid a commission by the lender. The only instances in which you might have to pay your broker is for an exceptionally small loan or commercial loan.
How Do I Find a Mortgage Broker?
There are many mortgage brokers across Australia to help guide you through the home loan application process. If you’re looking for a local broker, then a quick online search should bring up results for your area. Local brokers can put you in touch with a real estate agent in the same area who might help your house hunt.
Or, you can get in touch with Odin Mortgage to get access to our team of expert brokers for any home loan applications from expats or foreign nationals. As the leading Australian mortgage service provider for Aussies living overseas, we’ll provide insightful advice tailored to your situation.
Questions to Ask Your Mortgage Broker
There are so many mortgage brokers available, so it’s sensible to question them first to make sure they are the right broker for your situation.
- How much can I borrow?
Different lenders have different ways of assessing how much you can borrow. You can use our borrowing power calculator to get an estimate of how much money you are eligible to borrow. However, it is also a good idea to ask your broker for their advice.
- What documents will you need?
Depending on your situation, you may need to supply supporting documents. For example, if you’re self-employed or living abroad, you may need to provide additional evidence of your income.
- What types of mortgages do you offer?
There are different mortgage types, from a variable rate to an interest-only loan. Ask your broker about which types of mortgages they offer and which they would advise is the best for your situation.
- How long will it take to process my application?
If you’re trying to secure a property in a competitive area and need your finances approved, you may need to know the time frames for pre-approval and unconditional approval. It’s sensible to check with your broker how long it will take to process your application.
Get a free Australian mortgage assessment today.
Disadvantages of Using a Mortgage Broker
For many borrowers, using a mortgage broker is the best way to secure a home loan. Yet, there are instances where a broker may disadvantage some customers.
Firstly, a broker might not have your best interests at heart. While most brokers work to offer you the best loan to suit your situation, they have a reputation for being unreliable. Years back, brokers were unregulated and their compensation was usually based on the size of the loan. Therefore, you might suspect that they haven’t found the best deals for you.
However, in recent years, regulations around brokering have tightened.
All mortgage brokers should have an Australian Credit Licence. You should also check out their other customer’s previous experiences and testimonials to ensure that their interests align with your own.
The Advantages of a Bank
There is no harm in going to a bank for your home loan. In fact, for some borrowers, it might be the preferable option. This is particularly the case if you have stayed with the same bank for many years. When you speak to your bank’s loan officer, ask them what perks they can offer to you as an existing customer.
Similarly, they can usually offer package deals with other financial products, such as credit cards and savings accounts.
Many banks do have a large selection of loan products, especially the bigger banks. Plus, they tend to have a lending specialist that might be able to offer similarly detailed advice as a mortgage broker.
Nationwide
Banks tend to be able to offer loan products nationwide. While many brokers specialise in their local area, banks have the ability to provide loans to you wherever you are in the country. This is often useful if you are looking to buy a property in another state.
However, as Odin Mortgage works with foreign nationals and expats, we’ll help you find a lender wherever you live or hope to buy.
Quick Response
As direct lenders are in control of their own lending criteria, they are able to make a quick decision regarding approval.
On the other hand, by shopping around looking for the right mortgage from the right bank, you might waste valuable time that a broker will save.
The Disadvantages of a Bank
The main disadvantage of going directly to a bank to secure your home loan is that you must apply individually with each lender. Rather than sending one application to a mortgage broker, who then assists you in gathering and organising your financial documents, you must do all this yourself. Plus, you’ll likely have to repeat the application process multiple times for each bank you apply to.
Whereas a broker will help you sort out your finances and frame your application in the best light. You’ll only have to go through the process once.
If you are rejected by the bank, this declined loan application will likely go on your record and be questioned by future banks you apply to.
In addition, banks are bound by the Consumer Credit Code, whereas, brokers are bound by Best Interests Duty. This means that they are allowed to promote their own products, even if their product is not the best on the market or in the customer’s best interests. When applying through a mortgage broker, you can rely on the fact that they follow Best Interests Duty.
Banks also tend to charge application fees. As explained earlier, mortgage brokers are paid by the lender and rarely charge their customers.
Finally, working with a bank is often a more impersonal process. When you engage a broker to advise you, you work closely with that individual to find the right mortgage. Most likely, with a bank, you’ll be in contact with multiple different people throughout the process. This can make it harder to form a trusting relationship.
Which Is Better for Me?
Whether you go through a bank or broker to secure your home loan depends largely on your situation. If you’re stably employed with a regular salary, live in Australia, have a good credit score and a strong deposit, you’ll likely face no problems approaching a bank for your home loan.
However, if your situation is slightly irregular or challenging, it’ll be harder to gain approval from a bank. For example, if any of the following apply to you, you might find it easier to apply for a home loan through a broker.
- An expat
- A foreign national
- Have a poor credit score
- No credit history at all
- Are self-employed
- Have a small deposit
- Have outstanding debts
Odin Mortgage are willing to help expats and foreign nationals secure the right home loan with good terms.
Final Thoughts
The process of buying a new property is exciting. However, with so many complications involved (especially when you’re purchasing the property from abroad), you want the home loan application process to be as simple as possible. With the assistance of an expert mortgage broker, you can sit back and relax as we put in the hard work for you.
Plus, with Best Interests Duty, you can be sure that your broker is acting with your best interests in mind – not their own.
Get a free Australian mortgage assessment today.
Frequently Asked Questions
Is a Mortgage Broker Better Than a Bank?
Whether you choose to go through a mortgage broker or bank is entirely down to your circumstances. If your application is at all irregular, a broker might be in a stronger position to secure you a good deal. Also, brokers are bound by the Best Interests Duty, which means they will always offer you the best product.
Why Go to a Mortgage Broker Instead of a Bank?
A mortgage broker is able to offer you a range of loan products from a variety of different lenders. A bank, on the other hand, will only advise you on their own range of products which might not be in your best interests.
Is It Worth Paying a Mortgage Broker?
Usually, you won’t need to pay a brokerage fee as they are paid a commission by the lender. However, in some instances, you might need to pay for their services. As they have strong negotiation skills and are usually best placed to find you the best loan deals, you will still save money overall.
What Are the Advantages of Using a Mortgage Broker?
A mortgage broker is able to find a specialist lender to suit your individual circumstances. With expertise and experience in the industry, they have the connections to find you the best loan deal. They can give you an unbiased opinion, simplify the application process, and usually find a loan at a lower rate than the bank would offer.
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