What is a Mortgage Broker?

A Broker will facilitate the negotiation between you and the bank (typically) to get you your home loan. They will take care of the research, compare your options, and provide guidance from application to settlement.

Brokers are typically paid commission by the lender (bank) when the mortgage settles. This means that you usually won’t have to pay them for their services.

What are the benefits of using a broker?

Brokers offer a free service that provides many benefits:

You get the best products for you

Their expertise and experience means they are able to recommend the best option and lender for you in your current financial situation. e.g. Is an ‘interest only’ loan or ‘principal and interest’ loan better for you?

They can save you time

Talking to each bank, negotiating terms, and sending documents back and forth takes a lot of time. On top of this, every bank has its own process, documentation standards and requirements. Missing a step in the process could be the difference between in your application being accepted or rejected.

What are the disadvantages of using a broker?

We turned to Wealthful owner, Chris Bates, a financial advisor and mortgage broker and founder of The Elephant in the Room, a property podcast which has seen great success.

“Due to a very high turnover rate of new brokers, I would personally look to use brokers that have been around for at least two years. In an ideal world, try to work with a self-employed business owner because they have their reputation on the line and from my personal experience I believe they would truly care about keeping you as a client long term. They are aligned to your interests, but employees sometimes move to other companies frequently.”

Just because they don’t charge fees doesn’t mean they can’t cost you extra money. Make sure you consider the following points before deciding to use a broker:

It’s not their money

Since they work on commission, the larger the mortgage you take, the larger their paycheck. A broker may advise you to take a loan that is much larger than you can service – leaving you with the financial stress. Tactics like this played a large part in the 2008 Global Financial Crisis, resulting in an unprecedented number of risky loans and defaults.

“The biggest red flag would be a broker that focuses you on the interest rate but doesn’t take time to truly ask you what you are looking to achieve long term. For example, do you always want to live in Sydney? Are you always going to work at your current job? Are you going to start a family? Or a business?

Asking those big life questions will help people think how their life might change long term and understand what mortgage will work now but also in the future.

It’s all about understanding what might change in the future and is this property going to help you get where you want to go long term, or is it going to create more problems and could you get a better property to suit your long term.

If they are not taking the time to understand what your needs are and just selling you a loan, they are not a good broker,” states Chris Bates, CEO of Wealthful.

Bad advice

Be wary of the broker that doesn’t ask questions and treats you like another number. One size doesn’t fit all, and we trust that they will be able to provide us with personalised advice. Unfortunately, not all of them will pay you the same amount of attention, and you may get a recommendation for a product that is not ideal for your situation.

Hidden Biases

Brokers may not have a relationship with every lender, meaning they won’t provide a complete comparison of products. What does this mean for you? You may get pushed towards a lender that is not right for you just so that the broker can use a bank they are familiar with.

How do you find the best mortgage broker for you?

All of the above situations could be avoided by finding a professional and well-recommended broker.

Know what you need

Different people need different things from their brokers. First home buyers may need advice, reassurance and guidance. Investors need efficiency, due diligence and prompt communication. Each home purchase is unique so the first step is to know what you need.

Get a referral

Ask around! The number one way to find a good mortgage broker is through a trusted recommendation. A real estate agent, friend or family member may know from experience whether a particular mortgage broker met their needs, or if they should be avoided.

Look and reviews and ratings

There are multiple sources you can find information on potential brokers in Australia:

Broker sites: There are numerous sites (e.g. MyLocalBroker) that allow you to search for and compare brokers in your area.

Property forums: Real estate forums (e.g. PropertyChat) area great resource to find a broker, get advice and ask questions. Try searching for the name of the broker if you’re looking for a specific review.

Their Website: Each of these brokers should have their own website with reviews and user comments. Google ratings and reviews could uncover some red flags. A 1-star review is worth looking into!