Mortgage broker vs bank – Which one is better for you?

When applying for a home loan, the first decision to consider is to go directly to a bank or to find a mortgage broker. While banks give home loans directly, mortgage brokers help borrowers connect with lenders and compare offers from different banks

Let’s look at the benefits of using a mortgage broker vs a bank for a home loan and which is best for your circumstances and financial situation.

The pros and cons of using a mortgage broker

Let’s begin by looking at the benefits of a mortgage broker versus a bank, and the drawbacks.

Benefits of working with a mortgage broker

• Experience and expertise: a significant benefit of a mortgage broker vs a bank is their knowledge. With their thorough knowledge of the home loan landscape, the best mortgage brokers can easily understand your finances and find the best lenders for you. More importantly they can also assist you in structuring your loan correctly so this benefits you in the long run. Better still, a mortgage broker will guide you through the loan application process and demystify complex jargon (offset periods, fixed and variable interest rates, LVR (loan-to-value ratio), LMI (lenders mortgage insurance), etc.). This clarifies your loan terms so you know what you’re signing up for.
• Access to multiple lenders: mortgage brokers grant you access to multiple lenders, allowing you to determine the different types of home loans and which you qualify for.
• Bargaining power: because mortgage brokers consistently refer clients to home loan lenders, they have negotiating leverage. They may, for example, help increase your borrowing capacity by persuading lenders to waive origination, application, or appraisal fees – or arrange lower interest rates.
• Save time: between talking to and negotiating with multiple lenders on your behalf and assisting you throughout the loan application process, working with a mortgage broker vs a bank saves considerable time.

Cons of working with a mortgage broker

• Fees: perhaps the biggest downside of a mortgage broker is mortgage brokers may charge fees, like valuation and application fees, which can be a major drawback. Conversely, if a mortgage broker receives a commission from a lender, you won’t pay any upfront fees. For this reason, it’s important to clarify the fee structure upfront.
• Potential conflict of interest: because mortgage brokers tend to earn money through commissions from lenders, some may steer their clients towards loans that aren’t best for their financial situation. Fortunately, tighter financial regulations mean that mortgage brokers must disclose the commission they’ll earn, helping to prevent this.

However, this is a crucial reason to only work with the best mortgage brokers with a reputation for transparency and good ethics.

See more: Why you need a mortgage broker?

The pros and cons of using a bank

Let’s now explore the benefits of a bank vs a mortgage broker when applying for a home loan.

Benefits of working with a bank

• Familiarity: having an existing relationship with your bank might make you feel more comfortable working with them. Plus, as banks determine their own lending criteria, this could work in your favour.
• Package deals: on a related note, if you have other products or services from your banks, such as insurance and credit cards, they could package them to lower your costs.
• Interstate home purchases: some banks are licensed to process home loan applications across Australia, making purchasing property in another state more convenient.

Cons of working with a bank

• It’s time-consuming: firstly, you must research each bank’s products and loan terms yourself – and, if necessary, apply for each home loan individually. Worse, banks are less likely to help with the loan application process, including gathering the necessary paperwork and ensuring it’s correct. A mistake could see your application denied – and you’d have to start the process again.
• Less personalised service: banks have huge customer bases and offer various products and services, so they don’t need to invest time understanding your financial situation and finding the best loan for your needs. Precisely because a mortgage broker gets paid on commission, they’re incentivised to go the extra mile.
• Fewer home loan options: banks offer their own limited selection of loan products, repayment periods, interest rates, etc. Additionally, you lose access to exclusive loan terms only available to mortgage brokers.

Mortgage and bank: What is the best for you?

Here are a few ways to help decide whether a mortgage broker or bank is best for you:

• Financial circumstances: if you have a less than stellar credit history or a complicated financial situation, you’ll benefit from a mortgage broker’s access to lenders and specialised experience.
• Personal preferences: if you’d prefer guidance through the confusing loan application process, a mortgage broker is better. But if you’re financially literate and willing to research all the different loan products and interest rates, dealing directly with a bank might be preferable.
• Seek professional advice: consult a financial advisor and ask if a mortgage broker or bank is better, based on your financial situation.

How do I find a mortgage broker?

3 ways to find the best mortgage broker for your needs:

• Referrals: ask friends, family, colleagues, etc., which mortgage broker they used and if they’d recommend them.
• Search online: look for mortgage brokers on the internet, i.e., review platforms, online directories, and brokers’ websites. However, pay more attention to reviews on independent sites rather than testimonials published by the broker themselves.
• Consult other professionals: if you know or have dealt with real estate agents, property lawyers, accountants, or financial advisors, there’s a high chance they could recommend a mortgage broker.

K Partners – Top Ranked Mortgage Broker In Melbourne

If you’re looking to make purchasing your home as seamless as possible, look no further than K Partners. From the initial consultation to closing the deal on your home, we’ll help you every step of the way – and help you secure the best home loan for your financial situation.

Contact us to schedule your free mortgage consultation.

Please note that all the while the information provided above is factual in nature, it’s also intended to apply generally, and to a broad audience. Subsequently, the information hasn’t taken your personal circumstances or goals into consideration.

See more: 5 things to consider when choosing a mortgage broker