What is better, a bank, or a mortgage broker? And, the most important question: which one will cost you more?
A mortgage broker is the person who sits between you, and the bank. They are not lenders themselves, but instead act as a piggy-in-the-middle between you and potential lenders. Their ultimate goal in life is finding you the absolute best mortgage option, and helping you get approval for it.
They will sit down with you and talk about what your current financial situation is, assessing your income, expenses, credit reports, savings/ deposit, and all related financial information. Then, they find out what you need from your mortgage; the amount you’ll borrow, fixed or floating (they can help advise you on this too) and anything else. Are you consolidating loans and adding that to the mortgage? Will you want some mortgage fixed, and some floating? They carefully evaluate your entire situation.
Then, they do their shopping around. They will look into all the options, find out which suit you, and which lenders are likely to approve your application.
They make the borrower’s life easier because they:
- Know the market for housing and also the wider economic situation
- Take time to dive into your financial situation and recommend the best options for you
- Find the best deal by contacting multiple lenders
- Help streamline the application process to ensure the borrower has all documentation and their application has all the relevant information
Why Choose a Mortgage Broker?
There are several benefits from choosing a mortgage broker over directly approaching a bank. While they might not get you a better deal than one you could find yourself, they save you oodles of time and definitely have a lot of insight into mortgage structure and lenders.
They Have a Huge Range of Products to Choose From
Brokers have a unique benefit that a bank does not; they can find the best deal for you from all available options. And they are impartial; those working in a bank can only offer you their own deals which may not always be the best solution for you.
Brokers are Legally Obliged to Get You the Best Deal
In New Zealand, mortgage brokers are all regulated by the Financial Markets Authority (FMA). This means that they must abide by rules such as:
- Giving advice that is suitable for the client
- Ensuring that clients understand the full scope of the advice and any limitations.
- Advising the client of any conflict of interest
- Treating clients fairly with integrity
- Having appropriate levels of skill, knowledge, and competence to give advice.
The law requires mortgage brokers to put your interests first.
Mortgage brokers have the inside track with lenders. They know who will be more likely to loan to certain types of borrowers, and even if a certain bank is more likely to loan to those with a history of money problems.
They Cost You Nothing (But Might Save You a LOT)
Do you know how much a mortgage broker will charge you? Nothing!
They aren’t helping you out of the goodness of their heart though, the bank that gets your mortgage pays them a fee (commission). But you don’t have to pay them anything.
But, by them shopping around on your behalf and structuring your mortgage optimally, you will get the best possible deal. This could save you thousands of dollars over the course of your mortgage.
They Will Hold Your Hand
Applying for a mortgage, particularly if it’s your first time buying a home, can be complex and stressful. While finding a good home loan rate is important, it’s only one factor to consider. If you are using your KiwiSaver, borrowing from the Bank of Mum and Dad, or have other complicating factors, navigating a mortgage application can be overwhelming too. A mortgage broker can take you through the whole process, even advising on auction protocol, compliance issues, or basic things like helping create a budget.
When Is a Bank the Better Option?
If you have a great existing relationship with your bank, they may be more inclined to give you a great deal. Also going directly to a bank can speed up the process and fast-track the mortgage application. If you know the mortgage process already and your application is pretty straight-forward, then going direct to your bank first is a good option.
If you choose to approach the bank yourself, having awareness of the current financial situation in New Zealand, and some understanding of the housing market, definitely helps you to bargain to get the best deal.
Some banks also don’t like using brokers, as they like to have a direct relationship with their customers. They want all your business, including credit cards, banking, savings accounts, Kiwisaver and insurances. This isn’t a problem, but is something you should be aware of if you are interested in a specific lender. The good deal you get on your home loan might not make up for the less than stellar offerings on their other products. A broker will tell you up front if they do not deal with a specific lender.
Do Your Due Diligence
While brokers can be amazing, (and banks can be too), it’s still advised that you do some research yourself too. Check out some deals and interest rates, and ask your bank what they can do for you. If you’re not sure if your bank is offering you the best solution for your needs, get in contact with a reputable mortgage broker or financial adviser who will have your best interests at heart and will give you professional, thorough advice.
If you’re not sure, give Sam Kodi a call. We can chat about what you can expect from us, and if we are a good fit for you.