Friends and family know that I’m a ‘mortgage broker’, but they rarely understand what I actually do and they were all asking me the same questions – which inspired this blog.
It seems some people think brokers charge huge fees, and only recommend banks that pay the best commission. Some people believe they get paid more for putting clients into more expensive products. Some people think brokers just compare the market and give you the best interest rates.
So to make it clear, I’ll break down a few of these misconceptions to explain how a good broker can help you reach financial freedom before a bank can.
- Some people hear you can get a better deal from your bank directly:
The deal you get from a broker is exactly the same as, if not better than what you can get from your bank directly. It is not in the broker’s interest to make the bank as much money as possible. It is in the broker’s interest to save their customer as much money as possible so they come back next time. Think about it, a broker works for you, the customer. A banker works for the bank, with targets designed to make the bank money. Bankers are often paid based on the profitability of their portfolio, brokers are not! So this misconception is actually totally backwards. Why do you think brokers are now writing over 50% of all mortgages written in Australia?
- The broker will recommend the bank that pays the highest commission:
There’s no denying brokers are paid by banks in the way of commission, both upfront commission (when the loan settles) and ongoing monthly ‘trail’ commission. However, these commissions don’t vary much from bank to bank and a good broker would never risk repeat business for a small short term benefit. Banks pay commission to brokers because they don’t have to pay branch costs, staff costs, superannuation, bills and holding costs. A broker gives them a deal on a silver platter so they can afford to pay a commission for the cheap business. That’s why some banks prefer deals from brokers than bankers. Less hassle, lower costs and great quality business.
- You’ve been told you can find a cheaper deal on the internet:
Internet comparison websites are often exactly the same as any other advertising platform. Anyone who wants to advertise their product can pay big bucks to do so. They claim to be operating in the consumer’s best interest as an unbiased middle-man, however they don’t really represent the country’s lowest rates, as only lenders that have paid to advertise are listed. So this method of researching the market is also skewed. At least when speaking to a broker you can make your judgement based on reviews, how you feel about the person, or feedback from friends or family that have used them. The source is far more genuine.
- Brokers just recommend the cheapest interest rate:
Mortgage broking is certainly a relationship game, no different to bankers, except bankers move around their institution so often they are hard to locate a year or two down the track. Brokers aim to build a long term bond with clients and become a part of their long term success. Brokers often own their business, so they are motivated to exceed your expectations and often provide assistance whenever you need it, there’s no 9-5, Monday to Friday arrangement when you work for yourself. This can make the home loan application process easy and efficient. A good broker doesn’t just find the cheapest interest rates, they will work with you on an annual basis ensuring you are meeting your goals and making your way towards financial freedom. Your bank will not call you to remind you they have cheaper products on the market and that you qualify for them, a broker should be contacting you annually to review your position. Offering this full service package is what makes the relationship so strong.
There is no doubt there are under performing operators in every industry, and there will be people out there with unpleasant stories about bankers and brokers alike, you only need to look at the google reviews of the commonwealth bank to see even the biggest bank in Australia has unhappy clients. But do your research on the business you are considering, the person who will be looking after you and what their customers say about them. With the internet these days it’s not hard to find out what they had for breakfast. Literally, there’s probably a photo of it on Instagram.
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