Negotiating without a broker
The Deloitte Australian Mortgage Report 2020 states that two-fifths of the people they surveyed with a mortgage had used a mortgage broker to apply for their mortgage loan.
A mortgage broker is an intermediary between a financial institution and an individual. The broker works with both parties to get the individual an approved loan. Brokers collect and verify all the necessary paperwork that a lender needs, so an individual can be considered for a loan.
Isn’t it interesting, I have just read two articles about “negotiating without a broker“? I’m not sure the author really understands the value of a broker or the relationship that brokers and banks have as she states, “the banks don’t want to pay the brokers commission”, she also states that you can “shop around and get a better rate yourself”.
So, a few myth-busters:
Myth 1 – “Banks don’t want to pay Brokers”
Brokers and banks have great relationships! The bank does pay the broker just as they would pay their own staff to source loans. A bank’s home lender sources loans for the bank in the same way brokers do. Several of the larger banks only use brokers to secure their home loans.
Myth 2 – “Brokers only recommend lenders that pay them the highest commission”
All brokers are bound by the best interest duty act BID. This ensures the broker acts in their client’s best interest. This is the quintessential reason you have a broker on your team. Just like your accountant, solicitor or financial planner, your broker is qualified not only formally but with years of experience or if they are new to the market, they will have an industry mentor. Your broker then needs to achieve industry licensing, police checks, reference checks, insurance and ASIC licensing and most importantly are audited regularly to maintain compliance for both the licence holder and their accredited lending partners.
Lenders, generally pay the same remuneration. Remuneration is often the last consideration for a broker. Here are a few questions brokers ask first:
- Does my client fit the lender’s policy?
- Do they sit in the right postcode for security?
- How long have they been in their job?
- What type of job do they have?
- What type of security is being offered?
- How much deposit does my client have?
- What is my client’s credit rating?
- What are my client’s lending patterns?
- What other financial commitments does my client have?
Myth 3 – “Shopping around to get the best rate”
There is nothing wrong with searching rates and understanding what rates are in the marketplace, but make sure you understand what the rate really means and how this affects your personal circumstance and strategy.
For example: In 2021 fixed rates were cheaper than variable rates, some as low as 1.89% for two years. Great! But the catch is you could only pay very little extra off your loan outside the monthly repayment. If you like to pay extra each week or have an offset the cheapest rate wasn’t going to work for you. If you decide to pay the loan out early, you’ll be generally hit with an exit fee.
Having someone that understands your entire picture and works for you, allows them to offer you multiple solutions. The industry standard is that your broker will offer you between three and five different lending options before making a formal application. This document is generally known as the preliminary assessment.
You and your broker can then discuss the pros and cons of each lending opportunity from the multiple lenders. (Some people may not have as many options given their personal circumstances). If you choose to shop around on your own and make a formal application each time, whether the loan proceeds or not, it will put a mark on your credit file and this will affect your credit score. Also, ask yourself “How valuable is my time”? Put a price on your time and work out how much it will cost you to go it alone.
Like all great relationships, you need to find a broker that suits your style and understands your dreams, goals and aspirations and where you have come from financially.
So my final thoughts on negotiating without a broker:
As your trusted advisor and broker, I can cast the net wider and tap into over 60 banks and lenders from the Big Four to boutique lenders, and access thousands of products, to find the right loan for you.
Not only can I provide more options than the banks, I will also do the legwork for you and help you navigate the complex home loan process from application through to settlement.