Why you should use a mortgage broker
Whether you’re a first home buyer or an experienced property investor, buying a property usually requires a mortgage or home loan.
Choosing the right home loan can be the most important financial decision you’ll ever make – and the hardest. There are hundreds of options available in Australia’s crowded lending market, so it can be tough to figure out which is the right one for you.
Get the decision wrong and you might:
- Get rejected by the lender and potentially damage your credit score
- Miss out on a lower interest rate that could’ve saved you tens of thousands of dollars over the life of your loan
- Not be able to borrow as much as you need
- Not get your loan approved on time and miss out on your dream home
- End up with a loan product that has unsuitable features
- Pay too much in fees
Costly mistakes indeed. So how do you avoid making them?
By using a mortgage broker.
What does a mortgage broker do?
A mortgage broker’s job is to find you the right home loan for your needs and goals.
To do that, they will:
- Take the time to understand your unique financial circumstances
- Advise you on how much you can comfortably borrow
- Scour the market for the best deals that match your requirements
- Explain the mortgages available and help you compare them
- Structure your application to boost your chances of success
- Submit your loan and manage the process through to settlement
And mortgage brokers must be doing something right – with about 60% of all new home loans borrowers now choosing to use a broker.
But why should you use a mortgage broker?
To answer the question ‘Why should I use a mortgage broker?’ you need to compare the advantages and disadvantages of using a mortgage broker vs a bank vs going it alone.
Let’s first look at approaching your existing bank.
On the plus side, you’ve got an existing relationship, so know what to expect. It should also be simple to set up automatic repayments from your bank account to your home loan.
And you’d be forgiven for also assuming the bank will reward your loyalty by giving you the best deal possible, right?
Wrong.
In fact, going straight to your bank actually hinders your chances of getting the best deal. That’s because you’re limiting your options to only their products – which may not necessarily have the lowest rates, cheapest fees or right features.
Also, most banks don’t like borrowers that don’t fit their standard model.
That means you may struggle to get approved by your bank if your situation is in any way different from the norm, including:
- Being self-employed, on probation or a casual worker
- Depending on overtime, commissions, shift allowances or bonus payments
- Not being an Australian citizen or permanent resident
What about doing the work yourself?
If you manage the home loan research process yourself, the only way to make sure you’re getting the best deal is to compare the thousands of different loan products on the market.
Also, you need to somehow find out which lenders would be likely to approve an application from someone in your position. Most of the differences in lending policy are closely guarded secrets and usually matter more than the easy to compare fees and rates. And some lenders only lend through brokers.
This is difficult and time consuming but it matters for two main reasons.
First, every time you apply for credit, the lender pulls your credit report to assess your application. This is known as a ‘hard inquiry’ and can make a minor dent in your credit score. A single hard inquiry won’t bring your score down too much – but multiple applications in a short amount of time can do a lot of damage, making it harder to get approved for credit in the future.
Second, the right home loan for you is unlikely to be the one with the lowest rate. You also need to look at:
- Lending policy
- Interest rate type (fixed, variable or split)
- Interest rate structure (principal and interest or interest-only)
- Loan term
- Repayment frequency
- Fees (upfront and ongoing)
- Features (e.g., offset, redraw, extra repayments)
All these factors can impact how easy it will be to manage your mortgage and how much you’ll have to pay over the life of the loan.
Doing all this adds more time and effort to an already stressful process. But it’s the only way to make sure you’re making the right decision for what is the biggest purchase of your life.
Unless you work with a mortgage broker, that is.
The 8 Cs of using a mortgage broker
At Life Sherpa®, we sum up the advantages of mortgage brokers in 8 Cs.
These are:
Competition
Brokers now originate about 6 in 10 home loans in Australia. Gone are the days when going to the bank was the only way to get a home loan. As more brokers have entered the market, so have more lenders. That extra competition has helped drive down the interest rate margins charged by the big banks by 3 percentage points over the past three decades.
Choice
Brokers offer loans from a wide variety of lenders, unlike a bank that will offer only its own products. That makes it more likely you’ll score a great deal on your home loan.
Care
Brokers take the time to find the right loan for your unique situation. They know that different lenders have different policies regarding employment status, visa status, and rental and investment income. Also, they know different lenders assess loan applications at different speeds and require different documentation. In other words, brokers know that loans aren’t just about the interest rate, but about whether you can borrow what you want when you want.
Coaching
Brokers will guide you through the complicated mortgage process, letting you know what to expect at each stage and answering all your questions. This can be a godsend, especially if you’re a first home buyer.
Convenience
Brokers work to your time, not bank hours. Even better, many – like Life Sherpa® – work online, offering greater convenience.
Credit score
Brokers know which lenders would be likely to approve somebody in your situation. That protects you, because multiple applications and failed applications can damage your credit score.
Cost
Brokers generally don’t charge borrowers for their services. Instead, they receive a commission from the lender if they organise a loan for you.
Confidence
Brokers can give you peace of mind you’re making the right call on what might be the biggest financial decision of your life
When should you use a mortgage broker?
Should you use a mortgage broker as a first home buyer? Should you use a mortgage broker when refinancing? Should you use a mortgage broker when buying an investment property?
Yes, yes and yes.
But not all brokers are equal. It’s important to choose a broker that looks after people like you.
So, if you're buying your first home, look for one who specialises in first home buyers. Or if you’re an investor who uses complex structures like trusts, find one who specialises in that.
Want expert home loan advice? Schedule a discovery call with one of our licensed advisors.
Let Life Sherpa® help you get the right loan
Get help with choosing a better mortgage
The right loan at the right rate
Vince Scully
Founder and Chief Sherpa
With over 25 years in Financial Services from consulting to management, Vince Scully is the go-to guy for wealth management and financial advice. Vince founded the Calliva Group; a fund manager, product issuer, advisor and lender to Government and private clients. Vince is an advisor to the Wealth Management Industry, and prior to his role as CEO at Calliva, a senior member of Macquarie bank’s infrastructure team.
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