The pros and cons of going with a broker

Brokers can be a fantastic resource. Brokers can provide tailored advice on your home loan options, based on your personal circumstances and your priorities which can vary from customer to customer.

They can help buyers explore how much they might be able to borrow from the bank for their next purchase and assist existing borrowers in whether there’s merit in refinancing to a new lender.

A first home buyer might be interested in which banks offer lenders mortgage insurance waivers if they’re just shy of a 20 per cent deposit, while an upgrader looking to buy and sell their property might want to know which lender is likely to turn around their application the quickest. This is the type of lender-specific knowledge a good broker is likely to have ready to hand.

Brokers don’t offer loans from every lender in the market, but instead work with a panel of between 20 and 35 different lenders, although the exact number varies between brokers.

Each broker’s panel is focused on having a range of different types of lenders to cater for different clients’ needs, including some very competitive-rate lenders. However, they typically don’t include the complete range of lowest rate loans on the market. That’s because some of these lower-cost lenders only offer loans directly to customers as a cost-saving measure. That said, some brokers have access to discounts beyond the advertised rates on a bank’s website.

Brokers are allowed to charge their clients a fee for their services, however, many opt not to charge their clients anything, instead relying on the commission they receive from the bank. This commission typically consists of an upfront payment and trailing commission over the life of the loan.

If a customer chooses to switch lenders within the first 18 to 24 months of a loan, some banks reclaim a portion of the upfront commission from the broker they paid it to, however, changes in legislation in 2021 have made it illegal for brokers to claim this back from their clients. 

These changes in legislation also make it mandatory for brokers to work in the best interest of their clients. This best interest clause removes any potential friction between what’s best for a customer and the costs a broker might face from the bank if their customer refinances within the bank’s clawback period. It gives brokers a clear mandate and provides clients with comfort in the knowledge they are getting sound advice.

It can, however, create a headache for brokers who work hard to get the best possible results for their clients but ultimately face penalties of their own for doing so.

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