What is a mortgage broker and do you need one?

What is a mortgage broker?

A mortgage broker is a finance professional who helps everyday Australians take out home loans with lenders. Mortgage brokers act as middlemen between borrowers and lenders.

Not just anyone can call themselves a mortgage broker. This professional must complete broker accreditation and receive a broker licence before they can recommend you home loan options. 

Mortgage brokers also need to be accredited with a lender to do business with that lender, and typically have affiliations with anywhere from 10 to 30 lenders. This can include the big four banks, and other Australian providers.

What does a mortgage broker do?

The job of a mortgage broker is to discover a consumer’s unique financial circumstances and goals, and then recommend the most suitable home loan products. 

Put simply, they are there to help you through the process of finding and applying for a mortgage. This includes:

• Assessing your financial situation to determine how much you could afford to borrow.
• Recommending home loan options based on your financial situation.
• Guiding you through the loan application process.
• Negotiating with the lender for discounts and home loan deals.

The best home loan isn’t necessarily the one with the lowest interest rate – although interest rate is certainly one of the main factors that mortgage brokers consider. Mortgage brokers weigh up a range of factors, such as your employment, income and budget, as well as the loan’s features, fees, and the quality of the lender’s customer service. 

For example, standard home loans are designed for applicants with steady incomes from full-time employment, and the PAYG payment summaries to prove it. If you are a business owner/self-employed, a broker may help you to find a home loan that allows you to verify your income through BAS statements. 

Are mortgage brokers free? How brokers get paid

Generally, mortgage brokers don’t charge consumers for their services. Instead, mortgage brokers earn money by receiving commission payments from lenders every time a lender signs a home loan agreement with a client introduced by the mortgage broker.

These commission payments are a percentage of the loan. For example, if a mortgage broker helped a client take out a $500,000 loan and the lender in question paid an upfront commission of 0.65%, the mortgage broker would receive $3,250 from that lender.

Should you use a mortgage broker?

Still on the fence about whether you should seek the services of a mortgage broker? Here are ten popular reasons why Australians use brokers:

Brokers manage the whole mortgage application process 

A good mortgage broker should be able to help you with almost every aspect of the home loan application process until you sign the loan agreement and sometimes even after that. If you are a time-poor individual, this can be a worthwhile path to take in the journey of nabbing your first or next home loan. 

Brokers can point to the right lender for the right circumstance

Is your financial situation less-than-traditional? You shouldn’t be punished for being a business owner or self-employed and not being able to provide the standard home loan income evidence. 

Through industry knowledge and networks, mortgage brokers have an extensive range of information about banks and non-bank lenders. They may have even assisted someone with a profile similar to yours, and can therefore leverage that to give you the advice you need and direct you to the most relevant lenders. 

Broker are experts at navigating the complexity of a bank’s lending criteria

Mortgage brokers are usually qualified to review your income, savings, and credit history in much the same way as many lenders. By doing so, they may be able to give you the lender’s perspective on your home loan application without the risk of your application being rejected and impacting future applications. 

Brokers can negotiate with lenders to get you a better rate

In most cases, mortgage brokers recommend a lender from their list of preferred lenders, called a lender panel. Even outside this panel, they would have dealt with multiple lenders and therefore developed relationships with the lenders.

These are relationships that you can leverage, and that can help ensure that you get favourable loan terms, such as a lower interest rate. They may even have exclusive deals with particular lenders, so you may nab a more competitive rate than those being advertised.

Brokers may handle much of the application process for you

When you consult a mortgage broker, you’ll get an insider’s perspective on the home loan application, including the documents lenders prefer. For instance, you may be self-employed and not have payslips or even sufficient tax returns. In such a case, a mortgage broker can help you regarding other documents accepted by lenders, or lenders who require fewer documents.

Consider asking if your mortgage broker can connect you with an accountant in case you need to prepare financial statements as a self-employed borrower. You will then just need to supply the documents, and they handle the inputting of the information into the application.

Their expertise speeds up the application process

A good mortgage broker will have a thorough knowledge of the Australian home loan market, including the fine print of most loans. They can leverage this knowledge to speed up your application process. 

For example, a mortgage broker may be able to negotiate with a lender and not just get your loan pre-approved faster, but also re-apply on your behalf when the pre-approval expires with minimal input from you. 

Brokers may make applying for a home loan cheaper

Applying for a home loan can get expensive when you add up all the upfront costs, and you aren’t eligible for discounts or government schemes for borrowers. When you discuss your situation with a mortgage broker, they may be able to spot opportunities for savings on these costs, such as which lenders have lower fees.

Brokers may help you avoid damage to your credit rating

If you don’t have much experience with home loans, you may end up applying for multiple loans at once.

When you apply for any credit product, the lender will perform a hard credit check on your credit history. Having multiple applications and multiple hard credit checks at once may affect your credit score negatively, lessening the chances of any application being approved. It may also result in a mortgage application being rejected, which may also lower your credit score.

One way to avoid this is to use a mortgage broker who can offer advice regarding the right lender who can meet your home loan requirements.

A broker can offer you personalised borrowing choices

Seeking a mortgage broker’s advice on home loans may help you get more personalised offers, rather than cookie-cutter offers loosely tailored to borrowers with similar circumstances to yours. This knowledge can help you avoid a prolonged negotiation or, worse, applying without fully taking into account your specific circumstances. 

Brokers may not cost you anything

Most of the advice you get from a mortgage broker is invariably free of charge, as they get commissions from the lenders on their lender panel. As part of their licensing requirements, mortgage brokers need to disclose to you whether their services come with a cost. 

If you retain their services to help you monitor available loans after you’ve been approved for one, you may have to pay them a consulting fee. However, generally speaking, the services of a mortgage broker should be free. And if they are not, you can likely find someone else who doesn’t charge you.