When looking for a home loan, you will usually weigh between two options: apply for the loan directly from a bank or use a professional mortgage broker.
And while the end game is essentially the same, how and who you choose to apply for your mortgage can have a significant impact on the final rates and benefits you receive.
Working with a mortgage broker can provide a wider range of options and simplify the mortgage process. But on the one hand, working directly with a bank will give you more control and lower costs.
So, is it worth hiring a mortgage broker to help you find a good deal on your home loan? Or should you skip the middleman and go directly to a bank?
In this article, we take a look at the main differences between brokers and banks in terms of services, lending options and more.
Work with a mortgage broker
If you’re considering working with a mortgage broker, it’s important to understand how the process works when choosing this route.
By working with a broker, a borrower can access expert help from a professional who has their finger on the pulse of the loan market.
A mortgage broker is essentially an intermediary who mediates between the borrower (you) and the lender. This means that brokers do not have their own financial product to sell, but will only act as a liaison between you and their lending partners to help you get the best deal for your needs and situation.
Essentially, their main task is to guide you through the various mortgage options available through their network of lenders by helping you compare rates, fees, and features.
To do this, a mortgage broker will assess your financial situation and your solvency in order to better understand your borrowing capacity.
Benefits of Using a Mortgage Broker
There are several advantages to using a mortgage broker over a bank. Some of them include:
- A greater choice of loans. If you work with a bank loan officer, they will only introduce you to mortgage products that the lender currently offers. On the one hand, brokers offer choices to a wide range of lenders.
- Can help with approval. When seeking a mortgage from a bank, a broker can also advocate on your behalf, increasing your chances of getting the green light for a loan. This is especially helpful if you have a low credit score or extenuating circumstances that prevent you from getting a loan on your own.
- Help with preparation work. You can start working with a broker early in the property buying process. In addition to answering your questions about getting a loan, they can also help you gather all the necessary documents and information you’ll need to apply for a mortgage.
- Personalized support. Although banks and brokers can help you get a great home loan deal, brokers offer an additional service that is simply not available from lenders: personalized advice throughout the loan process. They will meet with you (in person or virtually), explain loan options, highlight points of comparison (e.g. interest rates, payment terms, etc.) and help you make an informed decision. .
- Convenience. It’s no secret that mortgage applications can be overwhelming and time consuming. Even after doing all the due diligence to find the loan that’s right for you, the loan application and closing process can be tedious, with lots of back and forth and document requests. A broker helps you put together your application materials with minimal confusion, saving you time and stress.
Disadvantages of working with a mortgage broker
There are also downsides to working with a broker for your loan, such as:
- It can take a long time to find the right broker for you. Due to the large number of brokers available in the market, it can be difficult to determine which brokers have the right skill set or experience that will meet your needs.
- Not all loan options will be on the table. Although mortgage brokers have access to a large network of lenders, it is important to remember that not all lenders work with mortgage brokers. This means that your loan pool may not be as large as you think.
- Cost increase. Borrowers could pay up to 2-5% of the loan value in fees. This is in addition to the fees the lender charges for your loan.
Working with a bank as a direct lender
Banks have their own set of mortgages that they can offer borrowers. The availability of loan options will depend on the bank.
When you go directly to a direct lender or a bank for your mortgage, you will be referred to a bank loan officer. Bank loan officers work for a specific bank or lender and often receive volume incentives when making loans to customers.
The loan officer will explain the mortgage products available at that particular bank and help you find the one that best suits your needs and financial situation.
Similar to a mortgage broker, a loan officer’s primary responsibility is to guide you through the application process, helping you gather documents. They will also help check your credit, income and employment.
They can also provide you with detailed financial advice similar to that given by a mortgage broker. The main difference is that they are limited to the bank’s mortgage products. A loan officer can match you with the best loan product available within that particular bank.
If you are already a bank customer, you will most likely find a good rate or even receive additional benefits. You can even get a discount on your loan fees or closing costs if you link your mortgage to the lender’s other products.
Benefits of working with a bank
Working with a mortgage broker is not for everyone. If you feel more comfortable talking to loan officers, you may choose to work directly with a bank.
Here are some benefits of working directly with a lender:
- Direct connection. If you work with a loan officer at a bank, you communicate with the lender’s employee. This means that all your questions can be answered without taking the time to go through an intermediary. Meanwhile, when working with a mortgage broker, they may not always be able to influence what happens at the financial institution since they are not working under their umbrella.
- Specialized knowledge. Going through a bank loan officer will give you access to the best deals offered by the bank or lender you choose to work with. Bank loan officers are also guaranteed to have in-depth knowledge and experience of the policies as well as the terms and conditions of their mortgage products.
- Potential discounts and benefits. As mentioned, it may be possible to get better deals and benefits with the bank if you have a relationship with a lender. Banks may sometimes offer packages on other financial products, such as credit cards and savings accounts. However, don’t let that be the only reason you stick with your current bank – be sure to do your independent shopping for a home loan if you think there are other banks that can give you a better deal.
- Fewer people to manage. Although going through a mortgage broker will remove a lot of legwork from the loan process, you will need to do some research to find a mortgage broker in the first place. You will need a mortgage broker who works well with you and also with your buyer’s agent. If the relationship does not go as planned, you can change brokers; however, that means you’re back to square one. When you work with a bank, you are put directly in touch with a bank loan officer, and you avoid tedious research to find the right person to work with.
Disadvantages of working with a bank
There are also downsides to working directly with a bank for your investment home loan, such as:
- Limited options. Banks only offer their own products, which can limit your mortgage options. Since banks are aligned with their own lending solutions, banks will only have access to their products and adhere to their own unique lending policies. This means you’re cut off from hundreds of loan products on the market and could miss out on better rates or benefits from other lenders.
- More stringent requirements for approval. Banks usually have higher eligibility criteria, which can make it harder to get a loan.
Do borrowers have other options?
Going directly to major banks and mortgage brokers is usually the most popular option Australians turn to when looking for a mortgage, but these are not the only options available.
These days, there are also many comparison sites online that can help you find a mortgage online. You can also turn to credit unions, trust companies, insurance companies, loan companies and even private lenders. Just be sure to take the time to shop around and compare lenders to find the best rates and deals.
Disclaimer: The information provided in the article is general and should not be viewed as personal advice. It is strongly recommended that you seek financial advice from a suitably qualified advisor.
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