Working with a broker vs working with a bank
What is a Mortgage Broker? Mortgage brokers are professional lending people who are independent from any one bank. They have qualifications with many banks in the Australian lending landscape, including major banks such as CBA, Westpac, St George, ANZ, and NAB. Brokers also have access to many non-bank institutions that lend money at a competitive rate (these include Pepper Money, Liberty, and Bluestone, to name a few).
Brokers take your specific life circumstances into account:
How you earn income – for example are you self-employed, working full-time or casual, or are you on parental/maternity leave?
What parts of your salary are useable for different lenders – including overtime, annual bonuses, and car allowances.
They also search for the lowest interest rate and fees by comparing a range of lenders in the marketplace.
Working with a bank, you generally get the same level of training and professionalism as you would with a broker, however the bank can only provide their own products and services. So if a bank only accepts 80% of your overtime as income, but overtime is a significant component of your income, they may not be able to lend you as much money as you need.
In this situation, you would probably need to find another bank, or go to a broker who would make the necessary checks first before helping you apply with the lender that suits your circumstances.
What's the cost difference between a broker and a lender?
Most brokers do not charge a fee for their service. There can be fees payable to the lender that your broker places you with, dependant on the lender and product. However, in general, brokers do not charge a fee and should tell you upfront if/when they do.
How do brokers get paid for their efforts?
Brokers have agreements with the lenders to pay an upfront commission, which is a percentage of the total loan amount settled. Additionally, brokers get paid a ‘trail’ commission on the balance of a loan, for the life of the loan. The lender pays the commissions, they do not come out of your pocket.
How do lenders get paid?
On top of utilising customers’ savings, lenders also borrow funds from overseas and domestic banks. They borrow money in large amounts, at a low percentage, which then enables them to lend this money out at a higher percentage.
Therefore the difference between what the lender pays to borrow the money, and what they charge you to borrow the money from them, is their profit margin.
This margin covers the bank’s overheads (such as wages, rent, electricity), and what is leftover is their profit.
All in all, shop around and make sure the broker you have decided to work with is going to give you good service, will give you what you need, and is transparent with their fees (you want to be completely aware of overall fees payable, as well as any separate hidden fees they may charge for their service).
You can usually get what you need from a broker with no fee to you, however there are situations where it is fair to charge a fee. Good brokers are happy to be honest about their fees; great brokers don’t charge a fee (above what they earn from the lender).
