Mortgage broker versus bank: what can they do for you
Approaching the bank for a mortgage can be daunting for a first home buyer. It doesn’t need to be. Either the bank’s mobile mortgage manager, or an independent mortgage adviser (mortgage broker) can help.
One works for the bank and the other is an independent advisor, who can shop around different lenders on your behalf. Both can come to your home or other location at a time that suits you.
This is not a them versus us situation; the two are just different. Banks’ mobile mortgage managers will go through all the same issues with you as financial advisers. The mortgage industry has room for both types of providers, so it really comes down to what suits your individual circumstances the best as you’re entering the property market.
What will your mortgage broker or bank advise you on?
Both mortgage advisors and mobile managers should be taking the time to run through issues with you such as:
– Educating you about mortgage basics like deposits, Kiwisaver, loan to value ratios (LVRs), low equity premiums, fixed versus floating and so on;
– Guiding you through the process when you want to buy a house;
– Considering your personal financial situation (including any debts relating to credit cards)
– Discussing the issue of parents contributing to your mortgage or going guarantor;
– Advising on fixed versus floating rates or splitting your loan across multiple different fixed rates;
– Arranging pre-approved finance. With a conditional mortgage offer, you can go shopping for your dream home;
– Talking to you about lump sum or regular extra repayments on your mortgage;
– Discussing penalties should you need to break your fixed rate mortgage;
– Helping you complete the paperwork, and
– Assisting you when life turns to custard. If your situation changes once you have the mortgage your advisor or manager should be able to help you renegotiate your loan.
However, you may find yourself in scenarios where only a broker can help. Firstly, because they are independent of the bank advisors, brokers can shop around. Sometimes your bank doesn’t provide the best deal or have the right type of product for you; you may be one of those tricky cases.
Each bank assesses borrowers slightly differently during the home loan process. It might be that even though your bank says “no”, you might qualify for another bank’s lending. Also, if you fall into hardship once you have the mortgage and your existing bank says “no”, your advisor can seek out other options for you. They’re also aware of various mortgage lenders or financial institutions and their specific lending criteria such as interest rate, fees, and terms of the mortgage.
Furthermore, if your parent goes guarantor on your loan directly through a bank, they may not realise just how far-reaching the guarantee is they’re signing up for. Sometimes by signing a guarantee for their children, they are agreeing to cover all further borrowing by them. How brokers work is that they will typically negotiate to limit that guarantee, and can be more sensitive to your general financial situation than banks.
What about non-bank lending for a mortgage?
In situations where you can’t borrow from a bank, a non-bank lender such as Resimac or Bluestone might still lend to you. Yes, you pay a little more in mortgage interest but if the mortgage market is proving tough to crack then you’re better off having more loan options when it comes to financial services providers.
It won’t cost you to use a mortgage advisor – they earn a commission from the bank or other lender for placing your mortgage with them. Do be aware that commission can in theory skew advice towards the bank paying the most. Advisors may also be keen to sell you insurance products, from which they earn additional commissions. Advisors, however, are licenced by the Financial Markets Authority, must belong to an independent disputes resolution service, and by law must give impartial advice.
Consumer points out that some mortgage advisors also give kickbacks to real estate agents or may work under the agent’s company. That’s not to say that an agent’s favourite advisor won’t provide you with good advice, but it pays to be aware of this when you’re picking someone to go through the loan application process with.
If you’re moving on to buying investment properties, there is one thing that a mortgage advisor can do for you that a manager won’t – they can spread your mortgages across multiple banks to avoid the risk of the bank forcing the sale of your home if you can’t pay up. A mortgage advisor can also discuss ownership structures such as trusts, companies, partnerships, or individual ownership with you.