The property market is red HOT like a red hot chilli. It’s so HOT right now.

The obvious question is where do I apply for a loan? Do I go to my bank? Do I go to another bank? Do I go to a mortgage broker?

We are a mortgage broker but we will try to give you a balanced argument for all sides.

Option 1: Go to your current bank
OK this may be the easiest option. You already know someone there. You may even like the teller girl at the counter and want to see her more often. If you get your home loan from the same bank, maybe you hit 2 birds with 1 stone.

Jokes aside, going to your existing bank seems like the obvious choice. They don’t need your bank statements because they can see the bank accounts internally. They don’t need your credit card and personal loan statements to verify the repayments because those facilities are with them as well. Sometimes, they don’t even need your payslips. Perhaps they don’t even need your ID’s??

A majority of the time, you can get a reasonable lending solution from just about any bank. This includes your own bank. Competition forces help to ensure the banks are reasonably competitive, and you don’t get ripped off extremely badly.

However, different banks have different risk appetite, and your borrowing power may vary from one bank to the next. For a simple household with no existing debts and earning a consistent base salary without any variable income component, the variance in borrowing power across the major banks is probably small. But the more complex your situation is and the more variable income components you have, the discrepancy tends to be more significant. The property you buy may also become important, with some banks shying away from certain property types, certain postcodes or certain buildings they already lend too much to in the past.

Still, if you are flexible with the property you buy and the loan amount you get, going with your own bank is probably not such a bad idea.

You do need to make sure you review your interest rates every 2 years, as there is a bit of a loyalty tax going on with a lot of home loan lenders. The longer you stay on a particular loan, the higher your interest rate tends to become, unless you re-negotiate it again. For the most part, banks are reasonable and will give you a discount with just a simple phone call. They hope that you forget to call, but when you do call, they will usually treat you reasonably nice.

Option 2: Go to 5-10 banks
OK so… you think you are a high achiever, you don’t want to just go to 1 bank (your existing bank). You want to compare options, get the lowest rate and the highest borrowing power (by the way, these 2 x objectives are not always compatible with each other).

Just like the best practice of inspecting 10-100 properties before buying 1, you might want to talk to 5-10 banks before getting 1 loan. Usually you need to book an appointment with the lending specialist, as they don’t have free time all the time. So if you talk to 5-10 lending specialists, you book 5-10 appointments. Some of them will want you to come in person, others might be happy with a phone appointment. The lending specialist can probably give you indicative interest rates and borrowing power without too many documents being sent through. But unless your income and financial situation are very simple, the borrowing power estimate is probably not accurate until you send through the supporting documents and complete the lengthy application form. They did say that Responsible Lending laws need to be scrapped in 2021 because the banks were looking too much into too many different things to determine borrowing power, right? There’s not much to look at before you send in all your documents and the application form, so the banks won’t be able to assess your borrowing power accurately.

That’s a lot of work… talking to 5-10 lending specialists at mutually workable appointment time slots, completing 5-10 application forms, and gathering 5-10 sets of supporting documents (which by the way may be significantly different between different banks).

Option 3: Go to a mortgage broker
A mortgage broker typically has access to around 40 banks and non-bank lenders. Granted, the broker may not regularly use all 40-odd lenders, and probably will not do detailed borrowing power calculations for you specifically against all of those 40-odd lenders.

But the broker generally has a pretty good idea of which 2-3 lenders tend to be good for particular scenarios, whether it’s to do with a specific component of your income (such as sales commissions being earned significantly in the last 6 months), or particulars of your existing debts and expenses. They will then focus their time and effort, as well as your time and effort, on gathering documents and assessing documents for these 2-3 lenders. They try to make the process as efficient as possible, both for you and for themselves, because they typically don’t get paid a single cent until your loan has commenced. Most mortgage brokers don’t charge a fee.

So, going with a broker, you are likely to achieve a better outcome than talking to 1 bank (your existing bank). You probably need to do more work than if you borrow from your own bank, but it’s probably well worth the extra effort. It will still be less effort than talking to 5-10 different banks.

Does going through a broker guarantee a better outcome than talking to 5-10 banks yourself?

The answer probably depends on what’s important to you, how much free time you have, how much energy you have, how lucky you are with the 5-10 banks you talk to, and how lucky you are with your broker. Not everything is black and white.

It is probably true that sometimes you may luck out with one of those 5-10 banks you talk to. You may build a really great rapport with the lending specialist and get offered a really low interest rate out of love (maybe that person has a discretion to offer whatever rate he likes, who knows). Or you may find a lending specialist who somehow has nothing to do, he approves your loan application on the spot (same day), everything is smooth sailing. But the opposite can happen too. You may get a bad interest rate, or the lending specialist may be super busy and takes 2 weeks to look at your documents, and then he says he cannot help.

By going with a broker, you tend to get a deal which is reasonably competitive, probably more competitive than the average market outcome. It may not necessarily be better than if you spend a whole week full-time talking to 5-10 banks, but it’s likely to be quite good, and you only need to spend 1 day talking to 1 person. You don’t need to be a great negotiator and you don’t need to “play hard to get”. The broker generally gets easy access to one of the bank’s lowest rates without having to enter into deep negotiation talks and play hard to get. They have hundreds of customers a year, it’s tiring and time consuming to spend 1 hour for each customer trying to negotiate the rate down, so the bank just gives them good rates to begin with. The broker knows what’s a reasonably good market rate and what’s a really bad rate, so they will make sure you get a reasonably good rate for your situation.

It is probably true that sometimes you can get a faster approval through the bank directly than through a broker. It depends on which bank, whether the person you are talking to has an approval authority, whether that approval authority extends to your specific loan (some loans need to be referred up to somebody else due to complexity), and how busy that person is. It also depends on how busy your broker is, and some banks (rare) may give priority assessments to certain brokers. There’s no black and white which channel is faster. There are too many variables. Intuitively though, if you already know which bank you’re going for, it may be faster to go straight to that bank, because there’s 1 less person/organisation involved. If your lending specialist has approval authority, only 1 person needs to assess your documents, instead of 2 (the broker and the bank).

So, should you use a mortgage broker or go to the bank directly?

I would say, if you are a busy person or a lazy person, you are likely to be better off going through a broker. A broker is likely to get you a reasonably great outcome, and consider your situation against their panel of typically around 40 lenders.

If you already know, with 100% certainty, which bank you want to end up with, you may sometimes get a better outcome if you go to that bank directly.

A lending specialist at a bank is like a medical specialist with 1 particular area of expertise. They only work for 1 particular bank, they know the bank policy really well because they spend all day every day working with that policy. They know their own interest rates really well and they have seen the lowest possible rate that the highest level of management has approved in the past. They see more transactions involving that bank (because they only work for that bank).

On the other hand, a mortgage broker is like a general practitioner. They know a bit about various diseases, but they don’t specialise. But a lot of people go to a general practitioner (mortgage broker) anyway, because they do not know which bank they want to end up with.

One problem which mortgage brokers face is they typically don’t charge a fee. What happens if a customer goes to the mortgage broker to narrow down the choice of banks, and then the customer goes directly to the bank to try to get a better rate? I guess the mortgage broker is screwed huh?

Actually the interest rates tend to be the same in the majority of cases. It’s only the odd rare ones, the lucky ones, where sometimes you do get a lower rate from a particular person at the bank who happens to like you, and it’s almost always only if you’re opting for a variable rate rather than a fixed rate. Plus if you do switch from a broker to the branch, you need to go through your financial situation again, fill in the application form again and provide your documents again. More work to save maybe 0.05%!

I’d say the choice is yours.

  • Go to a broker for convenience so you don’t need to talk to 5-10 banks, explain yourself 5-10 times and get multiple follow-up (harassment) phone calls from 5-10 lending specialists (on top of the 10-100 real estate agents you need to deal with).
  • Go to 5-10 banks if you like hard work and a bit of adventure, and you may luck out with a super great deal.
  • But please don’t go to a broker and then go to the bank directly. It’s not nice because the broker doesn’t get paid a single cent until the loan has commenced (and then the commission may need to be refunded if the loan is refinanced or paid off within 2 years). A broker does not get paid hourly salary like a bank employee. They truly make $0 if you don’t go ahead with the loan. In fact, some brokers have admin workers who still need to be paid, even if you don’t go ahead with the loan!

Disclaimer:
This is not a financial advice and is not any form of advice. It is an entertainment article which may not be well researched. No responsibilities are taken for any financial or non-financial loss.