What does a mortgage broker actually do?
A mortgage broker acts as an intermediary between a borrower and lenders. A broker can work with you to understand your circumstances and objectives, assess potential borrowing options and assist with a home-loan application. Depending on the circumstances and service being provided, this can involve:
- understanding your lending objectives
- reviewing your income, expenses and commitments
- assessing indicative borrowing capacity
- considering available lending options
- explaining loan rates, fees, features and structures
- identifying relevant lender-policy considerations
- assisting with documentation
- submitting the application
- communicating with the lender during assessment
- helping manage the process through to settlement
The regulator's description
ASIC's Moneysmart describes a mortgage broker as a go-between who deals with banks and other lenders to arrange a home loan.
What happens when I go directly to a bank?
When you approach a bank directly, you can discuss the home-loan products and options available from that institution. This can be appropriate if you already know which lender you want to use, you're satisfied with that lender, the lender has a suitable product for your circumstances, you prefer to manage the application directly, or you don't need broader assistance comparing different lenders.
A bank can explain its own products and assess whether you meet its lending requirements. However, approaching one bank does not automatically tell you how your circumstances might be assessed by other lenders. Different lenders can have different:
- credit policies
- servicing methodologies
- pricing
- loan features
- income-assessment approaches
- property requirements
- risk appetites
One assessment is one lender's assessment
That doesn't mean another lender will necessarily be better. It means a single-bank assessment reflects that lender's policies rather than the range of approaches across the market.
Does a mortgage broker compare every bank in Australia?
No. Mortgage brokers generally work with an approved panel of lenders. The lenders and products available to a particular broker depend on the broker's accreditations, aggregator arrangements and lender panel.
A broker therefore should not be described as automatically comparing every lender or every home-loan product in Australia. Rove Financial considers lending options available through its lender panel, subject to your circumstances and lender eligibility requirements, and does not provide a whole-of-market comparison.
What is the mortgage broker best interests duty?
Australian mortgage brokers are subject to a statutory best interests duty when providing relevant credit assistance to consumers. Under the National Consumer Credit Protection Act, mortgage brokers must act in the consumer's best interests when providing credit assistance in relation to credit contracts, and where a relevant conflict exists the broker must give priority to the consumer's interests.
ASIC's Regulatory Guide 273 provides guidance about these obligations. A broker's recommendation should be based on the individual consumer's circumstances rather than a one-size-fits-all approach, and ASIC indicates that in most instances brokers should present consumers with more than one option.
This is general information rather than legal advice. The duty does not mean a broker guarantees the cheapest loan, the lowest interest rate or a particular financial outcome.
Does a bank have the same best interests duty?
The statutory mortgage broker best interests duty described above applies to mortgage brokers within the scope of the relevant National Consumer Credit Protection Act provisions.
Banks and other credit providers operate under their own extensive legal, regulatory and responsible-lending obligations. The distinction relevant to this comparison is simply that a mortgage broker provides credit assistance across more than one credit provider, while a bank is generally providing access to its own lending products.
How do mortgage brokers get paid?
Mortgage brokers are commonly paid commissions by lenders when a loan settles. This can include an upfront commission and an ongoing or trail commission. Depending on the broker and circumstances, other fees may also apply, so using a broker should not be assumed to be free in every case.
Consumers should be informed about relevant remuneration and fees through the applicable disclosure documentation. Moneysmart recommends asking a broker how they are paid and whether remuneration differs between lenders.
At Rove Financial, applicable fees, commissions and other required information are disclosed through our credit guide and related compliance documentation.
Will I get a better interest rate through a mortgage broker?
Not necessarily. A broker may be able to identify competitive options available through their lender panel, but there is no guarantee that using a broker will result in a lower rate than approaching a lender directly. Pricing can depend on:
- lender
- product
- loan size
- loan-to-value ratio
- loan purpose
- repayment type
- borrower circumstances
- lender pricing decisions
Look at the whole loan
Consider the overall loan — rate, fees, features, structure and term — rather than assuming one distribution channel will always produce the lowest rate.
Can a mortgage broker help me borrow more?
A broker can help identify how different lenders may assess your circumstances. Because lender policies and serviceability methodologies can vary, indicative borrowing capacity may differ between lenders.
However, the purpose of using a broker should not simply be to find the lender willing to provide the largest loan. The amount borrowed should still be appropriate for your circumstances and objectives.
When might using a mortgage broker be useful?
A broker may be particularly useful when you:
- want to compare options from multiple lenders available through a lender panel
- aren't sure which lender may suit your circumstances
- want help understanding borrowing capacity
- are buying your first home
- are refinancing
- are self-employed
- have variable or non-standard income
- are purchasing an investment property
- have multiple existing debts or properties
- want help understanding loan structures and features
- want someone to manage communication with the lender during the application
Useful, not compulsory
This does not mean these borrowers must use a broker. It means the additional comparison and assistance may be useful.
When might going directly to a bank make sense?
Going directly to a lender can also be a reasonable approach. For example, you may have a strong preference for a particular bank, already understand the product you want, be satisfied with your existing lender, receive a suitable retention or refinance offer, prefer dealing directly with the lender, or have straightforward lending needs.
The objective should be making an informed decision rather than choosing a broker or bank simply because one channel is assumed to always be better.
What questions should I ask a mortgage broker?
Before proceeding, a few questions can tell you a lot about the assistance you'll receive.
Which lenders can you access?
Understand the broker's lender panel and any relevant limitations.
Why are you recommending this loan?
The broker should be able to explain how the recommendation relates to your circumstances and objectives.
What alternatives did you consider?
Understanding the other options considered can help you evaluate the recommendation.
What will the loan cost?
Ask about the interest rate, comparison rate where relevant, ongoing and upfront fees, loan features, potential switching costs and other relevant costs.
How are you paid?
Understand commissions and any fees that may apply.
What happens after settlement?
Ask whether the broker provides ongoing reviews or post-settlement support.
What should a mortgage broker explain to me?
A broker should help you understand the options being presented. This can include explaining:
- why a particular option has been recommended
- the interest rate
- fees
- loan features
- repayment structure
- relevant risks or trade-offs
- lender requirements
- the application process
Reasoning matters more than a product list
Moneysmart recommends asking the broker to explain how each loan option works, what it costs and why it is considered to be in your best interests. The objective isn't simply receiving a list of loan products; it's understanding the reasoning behind the recommendation.
Mortgage broker vs bank for first-home buyers
First-home buyers often have more questions than simply which lender has the lowest rate. They may need to understand borrowing capacity, deposit requirements, LMI, government schemes, purchasing costs, pre-approval, loan structures and the application process.
A broker can help bring these pieces together while considering lenders available through their panel. Government-scheme eligibility and lender approval requirements still apply separately.
Mortgage broker vs bank for refinancing
Someone refinancing may already have an offer from their existing bank. That doesn't automatically mean they should leave. A useful comparison can include:
- the existing lender's retention offer
- alternatives available through the broker's panel
- switching costs
- interest rate
- loan features
- remaining loan term
- proposed new loan term
- overall lending structure
Let the comparison decide
Sometimes staying with the existing lender may be appropriate. Sometimes refinancing may improve the position. The comparison should determine the answer.
Mortgage broker vs bank for self-employed borrowers
Self-employed income can require more detailed assessment. Different lenders may treat business income, financial statements and other evidence differently.
A broker familiar with self-employed lending may help identify lenders and structures available through their panel that may suit the applicant's circumstances. This does not guarantee approval.
Is a mortgage broker worth using?
A mortgage broker can be valuable if you want help understanding your lending position, comparing options available through a lender panel and managing the application process.
But using a broker should not be treated as automatically better than dealing directly with a bank. The quality of the broker, the lenders available, the borrower's circumstances and the lending options being considered all matter.
A good outcome starts with understanding your objectives and finding an appropriate lending solution — whether that ultimately involves refinancing, using a different lender or, in some circumstances, remaining with your existing bank.
Frequently asked questions
Is it better to use a mortgage broker or a bank?
Neither is automatically better for every borrower. A bank generally offers its own products, while a mortgage broker can consider options from multiple lenders available through the broker's panel. Which approach is more useful depends on your circumstances and how much assistance or comparison you need.
Do mortgage brokers have access to every bank?
No. Mortgage brokers work with lender panels and accreditations, and the lenders available vary between brokers and aggregators.
Do mortgage brokers have to act in my best interests?
Australian mortgage brokers are subject to statutory best interests obligations when providing relevant credit assistance to consumers. The exact application of these obligations depends on the circumstances and applicable law.
Are mortgage brokers free?
Mortgage brokers are commonly paid commissions by lenders, and depending on the broker and circumstances additional fees may apply. Review the broker's disclosure documentation and ask about remuneration and fees.
Can a mortgage broker get me a cheaper home loan?
A broker may identify competitive options available through their lender panel, but there is no guarantee that a broker will always obtain a lower rate or lower-cost loan than dealing directly with a lender.
Can I talk to both a mortgage broker and my bank?
Yes. Understanding what your existing lender can offer and comparing that with other appropriate options can help you make a more informed decision.
Can a broker help with refinancing?
Yes. A mortgage broker can review your existing lending and compare relevant refinancing options available through their lender panel.
Can a broker help first-home buyers?
Yes. A broker can assist first-home buyers with lending matters such as borrowing capacity, deposit requirements, loan options and the application process. Government schemes and lender eligibility requirements remain separate.
How do I check whether a mortgage broker is licensed or authorised?
You can check ASIC's professional registers and the information provided in the broker's credit guide, which sets out licensing and authorisation details.
General information only. This information does not take into account your objectives, financial situation or needs. Lending criteria, rates, fees, products and eligibility vary between lenders and may change. Rove Financial considers lending options available through its lender panel and does not represent that it compares every lender or product in the Australian market. Credit is subject to lender approval and applicable lending criteria.