Compensation for this post was provided by FindBroker. Opinions expressed here are my own.
Is there any real difference between a mortgage broker and a lender? While both parties can help you secure a loan, knowing the difference between the two will assist in deciding which would be better in your circumstance.
If you’re looking to purchase a property, for whatever reason, it’s almost sure that you’ll also be looking to secure a mortgage.
For most, this part is the most stressful, as you are required to give evidence of your credibility as a borrower. Additionally, you need to research all the available loan products to find one that’s suitable for your financial circumstances and has the features that you’ll require.
Should you go with a mortgage broker or a lender?
The first noteworthy distinction between the two is that brokers bring a selection of different lenders to the table, this gives you a certain diversity of choice that banks or other credit providers cannot offer. Conversely, some lenders may be able to provide a lower interest rate because they don’t have to pay a broker’s commission.
Let’s consider the advantages and disadvantages of each approach:
Why pick a broker?
The principal advantage of using a mortgage broker rather than a lender is the quality of the service. Brokers help with the completion of all the requisite paperwork, and a good broker will work with you on your schedule. They will assess your financial situation and creditworthiness and use a database to find the best loan for your personal financial situation. Depending on the broker, they may not cost anything at all to the borrower – instead only charging a commission to the lender.
Brokers have extensive knowledge of available lenders which include credit unions, major banks and other lenders. If you’re not already familiar with the industry, in can be very daunting to make sense of all the products out there; therefore, the layer of abstraction that mortgage brokers provide can be very helpful. If the borrower is self-employed, has bad credit or has some other circumstance outside of the norm – typically it’s easier to get a loan through a broker. This is because brokers know exactly what lenders to use for these sorts of loans and what evidence they require.
Finally, once the loan application has been submitted, brokers act as a go-between with the lender and the borrower, assisting in any negotiations and chasing things up on behalf of the borrower.
The main difficulty with mortgage brokers is deciding which broker to use. If you don’t already know a good mortgage broker, finding a reliable mortgage broker that’s trustworthy can be a real challenge. For this reason, it is necessary to ask for references and to check whether or not the broker you see is registered under ASIC.
Why directly go to a credit provider?
Alike to mortgage brokers, lenders will usually have you work with loan officers who will determine your credit worthiness and offer you the best loan package available through that particular lender. As distinct from a broker, the lender can’t offer as much of a variety of loan packages as a broker can, but can sometimes offer a lower rate, as they don’t need to pay commission to a broker.
As previously noted, the main limitation associated with using a lender directly is the lack of choice available to the borrower. This means that the loan that you get may not be competitive for its flexibility, features or interest rate. Additionally, borrowers principally focus on the interest rate, however, when once considers any associated fees, a loan with a lower rate may end up costing you more. The borrower is at particular risk of this where they have limited knowledge of the marketplace and would have been better off with a mortgage broker.
People elect to either use a broker or directly deal with lenders for a variety of reasons. It’s necessary to do your research properly before electing to use either a broker or a lender directly.
Perhaps you’re looking for finance at the moment? FindBroker has a selection of brokers for you to choose from – make an enquiry today and get the right mortgage broker for you.