6 Reasons why you should use a mortgage broker

With Australia's white-hot housing market, it is understandable that potential borrowers and home buyers are overwhelmed. After all, there are other key decisions borrowers need to make—what is the right mortgage for me? What mortgage products are available to me? And how much interest will I have to pay?

This is where a mortgage broker can be invaluable.

In this article, we will outline not only the top reasons why you should work with a mortgage broker, but also the key questions that you should ask a broker prior to working with them. Here is everything you need to know about why you should use a mortgage broker to buy a home in Australia.

What does a mortgage broker do?

A mortgage broker is essentially an intermediary between a potential home buyer and a lender or bank. If you are searching for a home loan, your mortgage broker would help you find a lender with the best rates and terms to meet your financial needs. When suggesting a mortgage loan for you, a mortgage broker must act in your best interest.

Here is a basic checklist of what a good mortgage broker will do for you:

• Understand your financial needs and long-term goals
• Determine how much loan you can afford to borrow (and repay)
• Establish the best option that suits your financial situation
• Explain how each home loan works and what each loan costs (including the interest rates, fees, and features)
• Apply for the mortgage loan and manage each step of the process through to settlement

Typically, your mortgage broker will collect your information and then go to numerous lenders to find the best possible home loan for you, which can be especially beneficial for first-time home buyers. To see which type of loan arrangement they can originate for you, mortgage brokers will check your credit. Ostensibly serving as a loan officer, your mortgage broker will then collect the pertinent information and work with you and your lender to close the loan.

How does a mortgage broker get paid?

There are several ways that mortgage brokers get paid. Usually, lenders or banks will pay the mortgage broker a commission or fee for selling their mortgage products, meaning you yourself do not pay the broker. Some mortgage brokers, on the other hand, will receive a standard fee regardless of the type of home loan they recommend. Other mortgage brokers will receive a higher fee for offering certain mortgage loans.

In other instances, brokers can charge their clients a fee directly instead of, or in addition to, the commission from the lender. It is important to conduct your research and ask around to see what other mortgage brokers charge, if you are unsure whether you are getting the best deal for you.

Why would you go to a mortgage broker?

You would go to a mortgage broker if you wanted to access home loans that are not often advertised to you. A few examples of when a mortgage broker would help you access loans that would be good for you include:

• If you have exceptional credit
• If you own your own business (or other unique borrowing situations)
• If you are unable to find a mortgage that will work for you specific situation

Most potential home buyers usually opt to work with a broker regardless of their financial situation because brokers allow them access to lenders they would otherwise not think of. And, compared to most commercial loan offers, mortgage brokers might also be able to help you qualify for a lower interest rate.

What are the benefits of using a mortgage broker to buy a house in Australia?

There are many reasons why you should use a mortgage broker to buy a house in Australia. For starters, a broker will help you find home loans that are usually not advertised to you. A broker can also open the doors to lenders you may not usually think to approach and can also help you secure a lower interest rate.

Let’s take a deeper dive into the benefits of using a mortgage broker to buy a house in Australia. Some of the benefits include:

1. Convenient appointments
2. Saves you hassle
3. Loan comparisons
4. Expert advice
5. Pre-qualification
6. No charge

Here is a closer look at the benefits of using a mortgage broker:

1. Convenient appointments

The hours that brokers keep are typically more flexible. Occasionally, your broker may also be willing to work after hours or on weekends and meet at a time and place that works best for you. While this may seem like a minor perk, it is a significant benefit to anyone who works full time or who has a family and wants to sell up and move on or secure an investment property.

2. Saves you hassle

In other words, mortgage brokers do all the legwork, finding the right loan for your financial needs and supporting you through the whole application and settlement process. This also includes dealing with the paperwork, as well as sourcing pre-approval and helping you apply for government incentives or grants.

An especially skilled mortgage broker will have a system in place to ensure that you remain informed throughout the entire process. Not only does this enable you to remain focused on finding your ideal home, but it saves you time—and hassle.

3. Loan comparisons

Mortgage brokers take the time to explore your individual situation to determine your financial goals. Not only that, but brokers have access to a wide range of home loans from numerous lenders, including the big four Australian banks to international banks with local operations, regional banks, credit unions, and lenders. This access allows most brokers a larger scope to find the best loan for you.

One of the major benefits to working with a mortgage broker is gaining access to even more banks and lenders as well as their loan options. This enables the broker to provide you with quick and easy loan comparisons so that you can make the best choice for you.

4. Expert advice

A good mortgage broker will be able to explain the different subtleties of various lenders and loan options to you, which could have a significant impact on your finances and save you thousands of dollars in interest payments. Knowing the benefits and risks of each different option can ensure you have the best finance option for your property investment strategy and, ultimately, your long-term goals.

5. Pre-qualification

When you unsuccessfully apply for a home loan, your credit history is affected. To avoid this, mortgage brokers use software that accesses the latest loan information across the board of lenders. Brokers use this information to better understand your individual situation and financial goals and for pre-qualification. This gives you a better idea of your borrowing power and which lenders are more likely to lend to you, so that you do not have to apply unsuccessfully and have your credit score history impacted.

6. No charge

The fees you will have to pay for a mortgage broker will vary, which is why it is important to ask about your new mortgage broker’s fee structure prior to using their services. Many brokers—though not all—make their money on commissions, which are often paid by the lender, meaning it is free of charge for you. Some brokers might earn a higher commission from a certain lender, however, which they might lead you towards.

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— Confidence Finance (@Confidence__Fin) June 17, 2022

What are questions you should ask your mortgage broker?

Mortgage brokers differ from bank advisors in that they have expertise in a wider range of products and can identify better deals for your specific financial situation. Before approaching a broker, however, it is critical that you are prepared. Remember: the borrower-broker relationship works best when all parties have all the pertinent information—and it’s a two-way street.

That’s why we have compiled this list of questions you will want to ask your mortgage broker before committing to any home loan:

1. Are you regulated?
2. What is your lender access?
3. How do you charge?
4. What kinds of mortgages are out there?
5. What is the interest rate up front and how might it change in the long run?

Here is a closer look at each question and why they are important to ask:

1. Are you regulated?

Before you begin any partnership, it is important that you check out your mortgage broker’s credentials. Ask your broker if he or she is a member of any regulatory bodies such as the Mortgage and Finance Association of Australia (MFAA).

2. What is your lender access?

In other words, how many lenders does your broker have access to? This information will be able to tell you whether your broker can give you advice on mortgage products from the entire market or from a limited selection of mortgage lenders.

The three different types of mortgage brokers include:

• Brokers tied to a specific lender
• Brokers that have access to deals from a limited list of preferred lenders
• Brokers who check the entire market for the broadest range of products

It should be noted that brokers who look at the whole market may not necessarily compare deals from every single Australian lender.

3. How do you charge?

Typically, mortgage brokers charge the borrower a fee, work on a commission basis, I.e., the borrower is not charged but the broker gets a cut from your chosen lender, or a combination of fee and commission. Occasionally, a broker will have their own special terms, like charging a fee for your first mortgage, for instance, while arranging any subsequent mortgage or remortgage for free. However, it is important to remember that the fee you are charged will likely be worth the time and money you will save.

4. What kinds of mortgages are out there?

One key consideration when taking out a mortgage is how you are going to pay it off. For repayment mortgages, for instance, you pay both the loan itself and the interest every month. At the end of the mortgage term, you must repay the remainder of the debt.

If, on the other hand, you have an interest-only mortgage, you repay the interest owed, meaning your monthly payments are lower. In this arrangement, however, you owe the entire capital amount at the end of the term. It is therefore important to ask your mortgage broker which products are out there so that they can find the loan most suitable for your circumstances.

5. What is the interest rate up front and how might it change in the long run?

There are mortgage offers that are made at an incentive rate, which is cheaper and usually between two and five years. After that period, most lenders will move you onto their standard variable rate, or SVR.

If the interest rate you are offered is under the lender’s typical SVR, it is key that you know the consequences of what will happen when this period ends, which can give you key insights into whether it is an affordable option in the long term. Regardless of what the interest rate is up front and how it may change over the life of your loan, it is important that you go in with a clear and full understanding, which is why this is another important question to ask your mortgage broker.

While there are other questions you should ask your mortgage broker at the beginning of your partnership, these are the key questions. Remember: Not only can a mortgage broker save you time and hassle, but a broker should also be able to provide you access to a wider range of mortgage products, therefore ensuring that whichever mortgage you choose, you will go with a loan that will be better tailored to your financial needs and long-term goals.

Before making a major move, it is important to do your research to find the best mortgage broker for you in Australia, such as checking in on what the best mortgage lenders in your area can do for you. If you want to get in on the ground floor with a Rising Star, you can also check out our Best Mortgage Brokers Under 35 in Australia. 

Have experience using a mortgage broker to buy a house in Australia? Let us know in the comment section below.