Is a broker better than a bank?

So is a mortgage broker better than a bank when shopping for your home loan? In today’s market it is less about rates and more about customer service.

Rates competition

Nowadays, mortgage rates are being offered at extremely competitive prices by a multitude of lenders, including brokers, banks and non-bank lenders. They uniformly come with a hefty discount on top of the headline rate. These rates are advertised so extensively that home buyers are a lot savvier when it comes to getting a home loan.

Most consumers are less interested in whether a broker is going to get them the best available rate. They care more about where in the market they’re going to get the best loan features and customer service. As Brett Halliwell, general manager of Advantedge Distribution (a wholesale loan provider to mortgage brokers) said: “Consumers know there’s a lot more that goes into a mortgage loan than merely the advertised interest rate.”

What sets brokers apart?

Mr Halliwell believes that the loan features and customer services offered by mortgage brokers, banks and non-bank lenders are generally of a very high quality. It’s not a question of whether brokers or banks or non-bank lenders offer superior loans and service, but rather that brokers offer a unique additional service that the banks and non-bank lenders don’t offer: they effectively hold an applicant’s hand throughout the relatively complex process of finding and getting approval for a home loan.

Mr Halliwell pointed out that this unique service is one reason why brokers now write more than 50% of home loans within Australia. Brokers also bring to the table an extensive knowledge of available loans from a broad range of lenders, which is another skill set that the average loan applicant knows simply cannot be matched, he said.

This knowledge allows brokers to see the bad points as well as the good points of individual loans, usually from the constant feedback they get from their clients who already have these loans, said Mr Halliwell. By comparison, most individual home loan lenders will likely only tell a borrower the advantages and features of a loan rate, he said.

Accessing loan criteria

Mortgage brokers also acquire an expert understanding of each lender’s specific loan criteria, such as whether they accept negative gearing and depreciation to calculate an applicant’s ability to service the loan on an ongoing basis. This essentially enables them to do a pre-qualification with an applicant before they apply for the loan. Often this pre-qualification makes the difference between an applicant being declined or approved for a certain loan.

Pre-qualification can also help avoid the stain on a borrower’s credit rating that is inevitably left behind when the borrower’s application for finance is regularly refused. An applicant may not always know it, but the more their applications are refused, the less chance they have of getting a future application approved.

Brokers also help borrowers through every step of the application and approval process, which amounts to considerable paperwork you would otherwise have to do yourself. Along the way, brokers can brief you on mortgage protection insurance, fixed-rate loans and variable-rate loans and on additional loan features such as the redraw facility and offset and line of credit accounts.

Hiring a mortgage broker to do your legwork may just turn out to be the best solution for your needs, so consider that option as well before you give it a go.