Broker vs Bank for a Home Loan – Which Is Better?

A home loan is one of the biggest financial commitments anyone makes in their lifetime, and with the average loan taking 30 years to pay off, no one wants to pay over the odds.

When applying for a home loan, homebuyers have two options. They can either go directly to a bank or enlist a mortgage broker to navigate the process. Each option has its own set of advantages and disadvantages, and the best route will depend on each person’s financial situation and the type of property they want to buy.

What Does a Mortgage Broker Do?

In a nutshell, a mortgage broker is a go-between for prospective homebuyers and money lenders (banks, credit unions).

To secure the best loan for their client, a broker will understand what kind of property they are looking to buy, and then take a close look at their finances, credit score, and deposit savings to determine how much they can afford to pay.

Brokers will use this information, combined with their knowledge of the property market and their network of mortgage lenders, to weigh up home loan options and recommend the best one for their client’s needs.

They’ll also provide guidance throughout the entire application process, including filling out the necessary paperwork and advising on all the documents you’ll need to provide (like proof of identity, bank statements, and debt history).

What Working With a Broker Can Offer

• Brokers have deep knowledge of the home loan options and will suggest the right one based on each client’s unique financial situation
• Working with a broker will save time researching the endless home loan options out there 

• Brokers have access to a panel of lenders and can negotiate better rates on their clients’ behalf
• Reduces risk of wasting time applying with a money lender that will reject you
• Brokers work in the interests of their client - not the lender - to find a loan that will be suitable (and affordable) in the long run
• Working with a broker will provide personalised guidance and support throughout the home loan application process
• Most of the time, brokers don’t cost the buyer anything because they get paid through commission from lenders

Are There Any Downsides?

Like in any industry, some mortgage brokers will be more experienced and knowledgeable than others. Before selecting a broker to take care of a loan application, homebuyers should check whether they have the required qualifications and are licensed to give credit advice.

You can do this by checking a broker’s membership with organisations like the Finance Brokers Association of Australia (FBAA) and always reading reviews from previous clients.

While brokers are legally required to act in their clients’ interest and shouldn’t have ties to particular financial institutions, they are paid by commission from lenders, so it is helpful to bear in mind how this could influence their home loan recommendations. You can always check for potential bias by asking them how they receive their commissions and whether certain banks or lenders pay more than others. 

Going to a Bank 

For homebuyers who are confident in home loans and that they can research the best provider for their needs, it’s possible to apply for a loan directly through a bank. 

This process is pretty straightforward, provided there’s enough money for a deposit (usually 20% of a property’s purchase price), a stable income to pay off the loan, and a high credit score. Most of the time, you can get the ball rolling by submitting an application form on a bank’s website.

In some cases, banks will offer reduced interest rates, lower upfront fees, or package discounts in return for being a loyal customer.

Perks of Going Directly to a Bank

• Cutting out the middleman (a broker) can get you quicker and more direct answers to any queries
• Banks can reward loyal customers with reduced fees or package discounts, such as combining a home loan with credit cards or insurance
• It’s possible to get better rates if applicants have an existing relationship with the bank and are confident that they can do their own research into the different loan providers on the market

Things to Think About

With so many home loan options out there, it could be overwhelming to decide which is best without the knowledge and guidance of a broker. On top of this, banks will only promote their own products, so depending on how much research clients are able to do, they could miss out on a better home loan deal from a credit union or smaller financial institutions.

Banks also have slower, stricter procedures, so you could waste time applying with a bank that’ll reject you. A broker will never recommend a bank that would be unwilling to work with their client, and their application guidance could secure your loan more quickly.

So, Which Is Better?

There is no one-size-fits-all when deciding whether to work with a mortgage broker or go directly to a bank, but depending on each person’s financial situation and property goals, one could be more beneficial than the other.

For a buyer who is new to the home loan process, has limited funds, or a low credit score, a mortgage broker will be able to use their industry expertise and negotiation power to secure the best deal for their client. A broker will also take care of the application from start to finish to minimise stress and uncertainty. 

For those who are confident in their ability to choose the best home loan and independently handle their application, going directly to a bank should be straightforward. You could also benefit from loyalty perks if you’re an existing customer and have built a relationship with your bank.

How to Choose a Broker?

To get the best service from a mortgage broker, always check that they are fully qualified, licensed to give credit advice, and have proven experience in helping buyers secure the most suitable home loan.

All our finance and mortgage brokers are fully qualified, experienced, and backed by the FBAA. Use the online directory of recommended, accredited advisors to find a broker in your area.