If I had a dollar every time I was asked "What's the difference between the mortgage brokers and bank lenders?" I would be a few thousand dollars up right now.
There are distinct differences between mortgage brokers and bank lenders and the value they bring in. As an ex-bank manager, I was able to gauge the very element that differentiates the banker and mortgage broker from a customer's perspective. Here are some of those insights and what they mean to you.
Limited options or choices - This could lead to receiving ordinary rates, which could end up costing you thousands in the long term. For you to get competitive rates, you will have to haggle and negotiate. At times, you will even have to end up signing up for other products and services to get a further discount.
100% biased towards their employer - Remember that the bank lenders can only represent one bank which will lead to higher rates and compromises. As a consumer, you won't have a good view of what rest of the market was able to offer you.
The experience could vary - Generally, we find that the bank lenders are less experienced compared to mortgage brokers leading to all sorts of additional issues. For an example you might have to follow through with the lender yourself to check the progress, sometimes you will be asked to send through further documents as you move along the process which is inconvenient.
End up with the wrong product - Bank lenders will try and fit a square peg into a round hole. It's unlikely they will say no to a deal, except that they could be trying to structure a loan, not within their credit policies which may have an adverse effect. You will have to start the same process with another broker again if you get declined.
Lack of motivation - Sometimes not as driven, compared to mortgage brokers due to the remuneration structure. Not saying that all bank lenders are the same, but some are and I have worked with a few of them, unfortunately! For an example, if the particular bank lender had already met the quarterly target, he/she may not be as enthusiastic to put the loan through immediately, they might hold on and put it through for the next quarter.
Inconsistency - We have tried this experiment. If you go to two different bank lenders under the same bank, you might get quoted two different rates. This is mainly due to our earlier point about where they are at with their targets for the reporting period.
Accountability - Most lenders have to care about your experience since they are held accountable by their employer which will results in an overall accountability from start to finish.
Service after settlement - The advantage here is that if you have questions or need help with setting up accounts after the loan settlement, the bank lenders can assist you personally as opposed to being palmed off to someone else.
Biased - Mortgage brokers work on a commission model. While some banks pay more commissions, others pay attractive trailing commissions. This has an effect on where your loan is being written to and why.
Service after settlement - You will be lucky to get hold of your mortgage broker after your loan settles. Generally, mortgage brokers will ask you to contact the bank directly to complete any service requests after settlement.
Over promise - At times, brokers tend to over promise to entice you to go with them and then they may turn around and say that the banks are not keeping their end of the bargain, i.e. when they say "I will get you the first year package fee waived."
Transparency - Some brokers say that they have a vast number of lenders in their panel. But in reality, they prefer writing loans to a selected few. You are not entirely getting a clear view of all the available offers in this instance. They might have access to 30 lenders in their panel. But, truth be told, they like giving business to a selected few due to various reasons such as the commission structure, bonus schemes and even the relationship with the bank representatives.
More options compared to bank lenders - If your loan is slightly complicated and serviceability is a bit of an issue, brokers are capable of searching for banks with a generous credit policy that will fit your situation.
Engagement before settlement - Majority of the mortgage brokers work for their commission. Hence, they are a driven bunch. They will do as much as they can to attract your business and keep you engaged. Meaning that they will follow through and explain things well.
Experienced - Most mortgage brokers have a good number of experience under their belt. This experience will help structure loans and get them across the line in most cases without any issues.
It's rather evident that going to a bank directly or visiting one or two mortgage brokers may not end up giving you the best rates available. You will have to call around and visit more than 3 or 4 different brokers to understand what the market could actually offer you as the best home loan rate.
- Feel like spending less time shopping around
- Hate negotiating with multiple people
- Don't want to deal with annoying phone calls
- Are uneasy sharing your personal details with people
- Are not sure how to get the best possible offer tailored just for you
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Disclaimer: This blog post has not taken into account your objectives, financial situation or needs. Due to this, before acting on any general advice/information in this communication, you should consider whether it is appropriate to your objectives, financial situation or needs.