How do I choose to go with a bank direct or a mortgage broker?
It’s funny. When people buy a car they don’t wander down to the closest dealer and say ‘what do you have that will suit me’, and out of a choice of 2 or 3 options sign up and accept it, yet it happens with mortgages all the time. Sometimes you might be lucky and the closest bank you know offers you the best value product for you and you take it, but its rare. Brokers work hard to do the work for you to find the right strategy, product, supplier, deal, and then make it happen, and most times don’t charge you for this, so they are well worth considering with no real downside.
In the following information we explain the differences so you can decide, and if you want, we already have a host of hand chosen brokers ready to work with you, and we even offer a free 20 min conversation to talk through your scenario. Enjoy and if you like it, please share or be the first to add a comment.
A ‘bank’ is the institution that takes deposits and is also the lender.
A ‘lender only’ is someone that offers funds for borrowing that are usually sourced from super funds, wholesale banks, private funds, other banks etc. For the sake of easy reading, I will just use the more generic term ‘banks’ here.
Traditionally banks held all the information, skills and your local bank manager was known to you by first name and offered a great value-add to your personal and business affairs. You had one bank for life and you were at the bank weekly to deposit cheques, transfer money or make transfers. As corporate structures grew, branches declined and computer automation took effect, banks have become faster and more efficient with increased services like online banking and ATM’s, however with today’s volumes, clients have become a number and the personal understanding lost for the sake of volume and low cost transactions.
In the 1990’s, mortgage brokers started emerging in numbers to help bring back the competition and personal contact. Today there are over 15,000 qualified and licensed brokers in Australia, working side-by-side with almost all lenders, to offer the skill, knowledge, service and availability that people prefer. Almost 50% of all home loans go through a broker. The brokers have bought more transparency of information, created tools to compare many lenders fast and through the remuneration agreements, banks save a lot of money they would normally have to spend on their own staff and a professional broker can build a base of regular clients, much like an accountant or solicitor does.
What does the bank offer?
- The bank provides the funds for the home loan, the banking platform, often branch support and they are the legal entity that you deal with
- The bank offers their product and features only, and they will be the ones to assess if you meet their specific credit guidelines.
- Your loan contract is with them and ultimately you are responsible for paying them
- They usually have their own in branch ‘lending manager’ explaining the products and supplies the paperwork, then the file goes to other departments for finalisation
- They can only offer their own services, whether good or bad
- Lending staff operate from 9am – 5pm with some exceptions.
- You have a narrow range of products to chose from and you must fit into their specific bank borrowing policy.
- The staff work for the bank and are accountable to the bank to meet sales targets and ideals of service.
What does a mortgage broker offer?
- The mortgage broker is accountable to you as a potential long term customer.
- The broker has a large range of lending products, rates and options to choose from.
- The broker has access to a wide range of policies so is better equipped to find the specific solutions you may require.
- The broker introduces you to the final bank/ lender, but all of your contracts, agreements, money and responsibilities are with the bank.
- The broker offers exactly the same products as the banks as they are an introducer, not an originator.
- Brokers try to work 9am – 5pm typically, but often add the extra service of after hours contact and home visits for your convenience.
- Consistent contact. In 2 years time if you want to change a loan, the broker will be there whereas the bank staff member has probably moved in.
How much does a mortgage broker cost?
Usually there is no cost as the bank gives a fee to the broker for introducing the client and completing the paperwork/ processing. Some brokers do charge a nominal initial fee for new clients which is often refunded if the loan proceeds. Where the loan is complex with Trusts, specific requirements or many purchasers, the broker may charge a fee but this will be disclosed via a written quote very early in your conversations.
Are brokers formally qualified?
Yes. The minimum qualification before a broker can practice is a Certificate IV in Finance and Mortgage broking. Police checks are also mandatory as is membership of an External Dispute Resolution Scheme like www.COSL.com.au , completion of the Anti-Money Laundering and Counter-Terrorism Financing compliance training and membership of industry associations www.mfaa.com.au or www.fbaa.com.au .
Bank lenders have to do the same minimum Cert IV certification; however they can start working as a lender, whilst they are learning.
Whilst Cert IV is a great start, like most courses, the real learning starts on the job and it takes 2-3 years minimum for someone to start to be effective and even 15 year veterans say they learn something new, regularly.
The next level up is a Diploma in Finance and Mortgage Broking and this plus 5 years experience, is the minimum level of broker that we pre-qualify for you. The best brokers normally have relevant life skills like experience in other finance products, experience running business, statistical analysis, accountants or compliance related roles.
Why do banks do it if it costs them money?
There are 4 reasons:
- It actually saves money. It’s expensive for banks to recruit and train staff, supply desks, phones, computers, pay sick pay, super, payroll tax and supply office space. Money has to be spent advertising to bring clients in and on top, bank staff are paid regardless of whether a loan enquiry is successful or not so there is a lot of expense and waste. Compare this to the broker who receives no contribution for overheads, has to find their own clients and only gets paid for a successful loan settlement.
- New clients. Banks preference new clients as it expands their client base and brings more deposit funds that they can then on lend. Typically consumers go to the bank they already use for a new loan, whereas brokers often introduce consumers to new lenders with better rates.
- Necessary for non banks. Some lenders like ING, Homeside, Macquarie Bank and mortgage managers don’t have branches at all. Lenders like Suncorp, Adelaide Bank. AMP and many credit unions have very limited branches, so without brokers they will struggle to expand.
- Banks have little choice! Mortgage brokers currently account for around 50% of all mortgage loans written in Australia so if a bank was to stop using brokers, that’s a big part of the market they would miss out on.
How do I find a good mortgage broker?
We have already qualified and found selected brokers across Australia that we can refer you to. We hand pick the brokers based on a 10 step program:
- Minimum 5 years industry experience
- Diploma of Finance and Mortgage broking qualification
- Hold personal accreditations with a broad range of lenders
- Are current members of either peak industry body, being the www.mfaa.com.au or www.fbaa.com.au
- They have qualified with ASIC to hold their own Credit license
- They are solution driven and creative thinkers rather than pick the first answer and run with it
- They appear personable and service driven
- Peer reviewed by at least 2 lenders
- Peer reviewed by their Aggregator
- Ongoing positive feedback from the clients referred.
The good news is that we have already done the hard work for you and found what we think is the best available. Choose more information below or book a phone meeting to discuss your needs and be directed to a hand chosen professional.