Why are people choosing a mortgage broker over going directly to a bank?
The number one question we get asked on a regular basis is 'What does a mortgage broker do?' The answer is simple; they help people source the very best mortgage finance available to suit their individual needs in purchasing or refinancing a property.
A mortgage broker will work with a range of different lenders (banks, and non-bank lenders) to find the very best deal for you. They have well-established relationships with all major banks to help you get a home loan that works best for you and your situation. If you don't fit a particular bank's lending criteria, they will also work with a number of smaller non-bank lenders who can often come to the rescue when a traditional bank says ‘no’.
Did you know that in NZ approximately 40% of all new clients taking out mortgages with the major banks are introduced by mortgage advisors? In Australia, that number is closer to 60%, so banks have come to rely on a huge proportion of their business coming from mortgage brokers. To clarify the differences between going to a bank directly and using a mortgage broker in more depth, you can check out our previous blog "Mortgage broker v the bank - what is the difference".
Like many competitive businesses, no matter what the industry, banks are always competing against one another for customers. Most banks in NZ have high customer turnover, with clients far less loyal as they seek out better finance options to save themselves money! This is great for people who are trying to find the best lending deal to suit them and their families. After all your mortgage is worth a lot of money to them! Just have a play around with this mortgage calculator on Sorted's website to see just how much interest they can earn over the lifetime of your mortgage. As an example a mortgage of $500,000 over 30 years at 4%pa will earn the bank a staggering $358,949 in interest!
However, sometimes many people miss out on great lending deals because they are either putting all their eggs into one basket (a false sense of loyalty to one bank) or often because they simply don't know about other offerings. For example, a mortgage broker's number one job is to monitor financial products and interest rates on a daily basis so you don't miss out.
So why are more and more people using a mortgage broker every day? The answer is simple; they help you get the best possible deal (and improve your chances of getting approved in the first place) as they are there to negotiate on your behalf and present your ‘unique application’ to the bank in the best possible light. Also because they work with banks on a daily basis they have an intimate understanding of the industry and what information is more appealing to a bank. In some ways, this is similar to a dating site; finding a suitable match comes down to what attributes someone is looking for in a partner. This is the same theory for banks - they are looking for the right fit for them. Let's stay with the dating analogy a little while longer, if you can stand it!
Using a mortgage broker is like having a professional matchmaker in your corner. They know what you want and they know what the other side wants too - their job is to find the best match for you both!
The service that a mortgage broker provides to you is absolutely FREE. Many think that there must be a catch to this. The lenders (banks) will pay the mortgage broker a commission for new business once the mortgage is settled. This may ring an alarm bell in those of you who are a little skeptical. Does this mean that a mortgage broker will simply put you with the bank that offers the best commission?
Absolutely not! As mentioned before this is a matchmaking service and the banks will have a very strict criteria for who they will accept, and the level of risk they're willing to take. Banks have certain restrictions on the types of mortgages they can offer so they cannot take everybody. An example of this is where individual banks will generally not fund more than 30% of an apartment complex on their own (concentration risk) - they don't want to 'own' more than their fair share of mortgage risk in any one location. This means mortgages aren't simply a 'pay to win' game. The commission a mortgage broker receives is more like a finder's fee for introducing a 'good fit' client for the lender, and acknowledges the amount of work that the broker saves them. The mortgage broker handles a lot of paperwork on the bank's behalf and saves the lender a great deal of time, effort and work. In many ways, the commission is payment by the banks for the significant savings in time (and staff!) that they would otherwise be unable to avoid.
A mortgage broker will often negotiate discounts or special deals for you as well, even from your own bank. This can be in the form of an interest rate reduction or a cash incentive, or both. They have the advantage of knowing what special deals each of the banks are prepared to do for new business (or to retain a client) at that point in time, that are not public knowledge and are not advertised.
How reliable are mortgage brokers?
Because mortgage brokers work on commission only they are always efficient when it comes to getting back to clients. Here at Stephanie Murray Mortgages our mortgage brokers work to a strict deadline where they will reply to your enquiry within 24 hours. Having met you and obtained all of the information required, they set out to find you the very best 'approval' in the market. Because things can move fast in real estate matters, mortgage advisors understand that every second is valuable so usually work around the clock to make your dream a reality! It is also encouraged that you obtain a 'pre-approval' before you even start the house hunting process. Talking with a mortgage broker in advance is something that is highly recommended to all clients. Many barriers that can often affect a home loan outcome can be as simple as a small credit card (which if paid off) could make or break a home loan application.
If you would like to chat with a member of our team - our mortgage brokers are ready and waiting.