Key takeaways about using a mortgage broker
Mortgage brokers arrange home loans between lenders and borrowers.
45% of borrowers were referred to their mortgage broker by a friend or family member, according to Connective research.
Mortgage brokers get paid a commission by the lender for each loan they settle.
What is a mortgage broker?
A mortgage broker is a financial professional who facilitates home loans for borrowers. They act as an intermediary between lenders and home buyers to find suitable mortgage options, negotiate terms and generally manage the home loan application process from start to finish.
Mortgage brokers have a Best Interests Duty, which means they must act in their client’s best interest when recommending a home loan product.
While using a mortgage broker is not a must, about 1 in 7 Australians use one when applying for a home loan, according to the Mortgage & Finance Association of Australia (MFAA).
What does a mortgage broker do?
Mortgage brokers work closely with business development managers (BDMs) to stay up to date with different lenders’ rates, products and eligibility criteria. This then allows them to make recommendations for home loan products that best match their clients’ personal requirements and financial needs. A mortgage broker can also help their clients in their property search by running reports on the properties and suburbs they’re looking at.
Here’s how working with a mortgage broker generally works:
When you first meet with a broker, they will collect information about you, your financial circumstances and your property goals. You’ll be asked to fill out a Fact Find sheet which includes answering questions about your income, savings, employment history, assets and liabilities, etc. This is called pre-qualification — where your broker will determine your borrowing capacity and estimated repayments.
Following the assessment, you will receive a list of recommendations in the form of a Credit Proposal Disclosure document. This should give 3-5 lenders and product options to choose from based on policy rates, fees and turnaround time. Your broker should be able to explain how the different loan products work (e.g. fixed vs variable), what they cost and what features they have (e.g. offset, redraw). They should be able to provide logical reasoning for each recommendation.
Once you agree to proceed with a lender, your broker will prepare your home loan documentation, which you’ll need to read and sign.
During this next stage, the broker will lodge the home loan application on your behalf and handle all the paperwork requirements. They will manage your mortgage application until settlement.
After assisting with your initial loan, your broker should stay in touch to ensure your mortgage is still competitive. If necessary, they will help you refinance in the future to secure a better deal.
Why should you use a mortgage broker?
Knowledge and expertise
Mortgage brokers are home loan experts with in-depth knowledge of various lenders’ policies and products. This helps to ensure you go to the right lender from the beginning, especially if you’re working to strict deadlines to secure your dream home.
Choose from multiple lenders
Mortgage brokers typically have a panel of lenders they work with, including the major banks, smaller lenders, credit unions, etc. They also have access to loan products and rates that are not advertised. This means they can find a solution for most borrower circumstances. The more options you have, the better your chances of finding the right home loan.
Negotiation power
Mortgage brokers can negotiate with lenders on your behalf to secure competitive interest rates and favourable loan terms. They can leverage relationships with lenders on their panel to get the best possible deal for you.
Save time and effort
Brokers handle the legwork of shopping around for loans, comparing rates, and completing paperwork on your behalf. They generally use sophisticated software to compare home loan options and lenders in real-time. This saves you time and effort; you don't have to visit multiple banks or spend hours researching different loan options.
Ongoing support post-settlement
Good brokers continue to work for you well after your home loan is settled. They generally provide relevant updates about your loan and conduct an annual rate review to ensure you’re still on a competitive rate.
How mortgage brokers get paid
Mortgage brokers get paid a commission by the lender for each loan they settle. Brokers must supply a Credit Quote that outlines all their fees and charges before proceeding with any client.
There are two types of commissions a mortgage broker may earn:
Upfront commission: This is generally paid 30 days after a home loan settlement.
This upfront commission is generally calculated as a percentage of the loan amount.
Trail commission: Mortgage brokers may also receive an ongoing, ‘trail’ commission for as long the borrower remains with the same lender. The trail commission is generally calculated as a percentage of the loan balance.
Additionally, a mortgage broker may charge their client a fee for their service, especially for complex scenarios like self-employed borrowers. You may not be charged a fee for non-complex ‘vanilla loans’. Brokers employed as part of a brokerage firm also generally earn a base salary in addition to commissions.
Who should use a mortgage broker?
While everyone can use the expertise of a mortgage broker, there are certain borrowers who may get more benefit from their services, including:
First-home buyers
For first-home buyers who feel unsure about navigating the mortgage application process themselves, a mortgage broker can be worth their weight in gold. They can apply for any first-home buyer programs and incentives on your behalf, and coach you through the whole home loan application process from initial assessment to settlement.
Self-employed individuals
For self-employed individuals, working with a mortgage broker is highly recommended. Each lender has its own criteria for assessing the financials of self-employed borrowers. Navigating these low doc applications may require finesse. A good mortgage broker should be able to look at your financials and determine which lenders you qualify for.
Borrowers with complex scenarios
Mortgage brokers have experience navigating complex borrower scenarios (e.g. bad credit home loans, bridging loans). They use their knowledge of lenders’ policies and due diligence to put the best application forward, increasing your chances of approval.
Why use a mortgage broker instead of a bank
Mortgage brokers have a distinct advantage over individual lenders because they can tap into their network of lenders, typically ranging from 20 to 30 or more. This gives them access to hundreds of home loan products, therefore offering greater flexibility and choice to their clients. On the other hand, individual lenders only have their own products to offer, which may not meet the needs of the borrower and be competitive.
How to find a mortgage broker in Australia
There are about 19,000 mortgage brokers in Australia, according to MFAA. If you prefer to engage a broker near you, do a quick internet search for mortgage brokers in your local area. Be sure to look at their customer reviews to give you an idea of their level of customer service and competence. You can also search for MFAA-accredited brokers via the free directory.
Alternatively, you can ask for recommendations from people within your circle or professional network. According to Connective research, 45% of borrowers were referred to their mortgage broker by a friend or family member.
Before meeting with a broker, ensure they have a licence to give credit (loan) advice.
A broker can either have their own Australian Credit License (ACL) or they can operate as an Authorised Credit Representative (ACR) under the licence of their aggregator. You can check if your broker is licensed by using ASIC’s Connect Professional Registers.