Many common misconceptions or myths circulate about mortgage brokers. In this blog, we will probe through the top 9 myths about mortgage brokers that will assist in making informed decisions regarding property Investments.
Myth 1:
There is an Inherent Conflict of Interest because Banks pay Brokers
A common misbelief is that mortgage brokers will coerce you into opting for loan options on which they will earn the maximum commission. In reality, brokers are legally bound to operate in a manner that works in the best interest of their clients. Best Interest Duty (BID) is a statutory obligation for mortgage brokers to serve the best interest of their clients. The fact that brokers receive a commission when the loan gets sanctioned is true, but this does not by any means impact the mortgage costs for the borrower. Banks decide mortgage rates, whereas brokers assist in finding the best solution out of the myriad options and with the approval processes. Brokers help find a suitable loan that fits your needs, streamlining everything, not theirs!
Myth 2:
Borrowing directly from the bank is comparatively more reasonable than going through a Broker
Cutting out mortgage broker services might seem like a cost-saving measure, but that’s not true! This is a prevalent myth about mortgage brokers that borrowing loans directly from banks will help you save more. In reality, brokers help first-home buyers and investors zero in on the most suitable options by comparing loan products from multiple lenders, thus making it more cost-effective. Without brokers, banks would need to spend more on marketing, expanding branches and hiring more staff to serve customers. In other words, these will increase fixed costs, eventually impacting the final price.
On the other hand, brokers reduce time and costs in processes and assist clients in reaching the best rates and terms. Hence, applying for loans through brokers simplifies the process and provides the most suitable solution.
Myth 3:
Free Services come with Hidden Costs
There is this misleading assumption regarding brokers that free mortgage services come with hidden costs. This is entirely untrue! No hidden fees are charged for mortgage services. In fact, there’s strict compliance among the brokers and if they are charging any fee, they will declare it upfront in their Credit Guide which will be shared with you before proceeding with the loan approval process. Banks pay brokers a portion of their profit from the loan sanctioned, which does not impact loan terms or interest rates. So, brokers simplify the loan application process without any additional cost.
Myth 4:
You are supposed to Make a Deposit of 20% to Buy a Home
One of the biggest myths is that individuals should make a 20% deposit. While a 20% deposit for homes can lower your interest rate and help avoid paying Lenders Mortgage Insurance (LMI), it’s not a hard-and-fast rule. Many lenders offer loans with deposits as low as 5% or 10%. Mortgage brokers can assist in finding solutions for you if you have a low deposit. They can guide you whether paying LMI is a good option for you or not by doing a comparative analysis. Also, First Home Buyers can get benefit of Home Guarantee Schemes being run by the Government that can help buy with lower than 20% deposit, of course, need to check your eligibility first.
Myth 5:
Refinancing is Never Easy
Refinancing is assumed to be daunting, but the process becomes much simpler with the right mortgage broker. Brokers handle the prerequisite groundwork by comparing loan rates with multiple lenders to find the most suitable loan option, helping you secure the best deal. They allow you to determine whether refinancing is the right solution for you at the moment or not. This is especially important since there’s a cost involved while refinancing. With the help of a good mortgage broker, the process of changing lenders can be streamlined.
Myth 6:
Having Multiple Loan Applications Will Hurt Your Credit Score
While multiple credit checks can affect your credit score, working with a good mortgage broker minimises this risk. Good Mortgage brokers conduct thorough due diligence upfront, helping investors identify the right banks/lenders they should approach for loan approval. It’s a fact that applying to multiple lenders in a short duration negatively impacts your borrowing power. On a similar note, a bad credit history or credit report doesn’t mean you can’t get a loan. This might limit your options, but good mortgage brokers have access to banks/lenders who can offer loans with less-than-perfect credit scores. Mortgage brokers have access to lenders who tend to be more flexible and guide you toward solutions that suit your circumstances.
Myth 7
Interest Rates are the Only Factor That Matters
Interest rates matter and though they foremost catch home buyers’ or investors’ attention, there are many other factors they must consider. Upfront or Ongoing Fees charged by banks, Loan flexibility and features like offset accounts or redraw facilities impact a loan’s overall cost and suitability. Considering these is essential to ensure the proposed loan structure aligns with your short-term and long-term financial goals. Some other important factors are LMI, deals being offered by banks, eligibility of banks for Govt schemes, equity availability due to differences in valuations by various banks/lenders and timelines being taken by banks for the approval process. A good mortgage broker should help you compare various options across these parameters and help finalise the most suitable option.
Myth 8
Brokers Do Nothing for Their Trailing Commissions
While pre-approval is essential in home buying, it is not a signed guarantee that you’ll get the loan. The lender may still need to verify your financial information, check if the property parameters meet the ascertained criteria to take as a security and other personal details. Your monetary or employment conditions can change after a loan pre-approval, impacting your ability to get a loan. Good mortgage brokers have access to multiple lenders. They can try to find suitable home loan solutions if, for some reason, the bank/lender that extended you a pre-approval does not extend Formal or Unconditional Approval.
Myth 9
Having a Pre-approval Assures you of a home loan.
While pre-approval is essential in home buying, it is not a signed guarantee that you’ll get the loan. The lender may still need to verify your financial information and check if the property parameters meet the ascertained criteria to take as security and other personal details. Your monetary or employment conditions can change after a loan pre-approval, impacting your ability to get a loan. Good mortgage brokers have access to multiple lenders. They can try to find suitable home loan solutions if, for some reason, the bank/lender that extended you a pre-approval does not extend Formal or Unconditional Approval.
Frequently Asked Questions
Can I refinance the home loan if I have any outstanding mortgage with another lender?
Yes, you can refinance your home loan even if you have an outstanding mortgage with another lender. Refinancing allows you to switch to a new and more suitable lender and product, such as lower interest rates or a more favourable loan-securing set of requirements. A mortgage broker can assist you in navigating the refinancing process and compare offers from multiple lenders. It’s important to evaluate the options as there’s a cost associated with refinancing.
How many loan applications am I allowed to make without affecting my credit score?
Making too many loan applications quickly can negatively impact your credit score, as each lender conducts a credit check before offering a loan. Taking the help of a good mortgage broker simplifies the process as they can guide you to minimize the number of credit checks needed.
What does a mortgage broker actually do?
A mortgage broker bridges potential lenders and investors and home buyers like you, helping you analyse different scenarios, your borrowing options and help compare various loan options. They help by providing much-needed advice to navigate the landscape smoothly. Mortgage brokers guide you through the processes and help you find tailored loan solutions according to your needs.
How does a mortgage broker differ from going directly to a bank for a loan?
By visiting a bank directly, you can learn about different loan options offered by that bank. In contrast, a mortgage broker can access various lenders, including big, medium and smaller banks and lenders thus providing you with the opportunity to find competitive rates and loan terms that fit your financial goals. Besides this, brokers deliver tailored financial solutions and assist you with the application process, improving your home-buying journey.
Do mortgage brokers charge for their services?
In most cases, mortgage brokers don’t charge you for their services. Instead, the lender pays them a commission once your loan is approved and settled. There’s strict compliance on the brokers and if they are charging any fee, they must declare it upfront in their Credit Guide that will be shared with you before proceeding with the loan approval process.
Can a mortgage broker help me if I have a low credit score?
Yes, a mortgage broker can help you find lenders and loan options even with a low credit score. Brokers can access lenders specialising in working with clients with less-than-perfect credit. They can guide you through the options and help you secure a loan that you can repay according to your existing financial situation, even if mainstream banks decline your application.
How do mortgage brokers find the best loan deals for me?
Mortgage brokers’ strong professional network gives them access to various loan offerings from multiple lenders. Good mortgage brokers take accreditations from multiple lenders so that they can have solutions for varying scenarios. After assessing your financial situation, mortgage brokers can compare and find the most suitable loan options. Brokers use their knowledge of the lending market to identify competitive interest rates, favourable terms and loan products that fit an individual’s requirements.
Do mortgage brokers have access to all lenders or just a select few?
Mortgage brokers have access to various lenders, including major banks, credit unions and non-bank lenders. While they may only work with some of the lenders in the market, good mortgage brokers will have access to lenders vast enough with diverse competitive loan solutions from multiple institutions.
Can mortgage brokers get me a discount from the bank I am employed with?
Yes. Mortgage brokers can help investors secure discounts from the banks they are connected with. However, this depends on the bank’s internal policies and the employee’s profile. Some banks in Australia roll out employee-specific discounts, but then again, a mortgage broker negotiates for such discounts after verifying your eligibility. Following this, brokers can also assist in comparing these offers with other lenders to help you secure the best deal in the market.
The Final Word
Not only is it essential to have proper knowledge about the mortgage processes, but it is also essential to separate facts from myths. Don’t let the above-mentioned common mortgage myths stop you from attaining your homeownership goals. If you have some queries lined up or need clarification on anything mortgage-related, don’t hesitate to contact a professional mortgage broker at Nfinity Financials for necessary guidance. For more information, CONTACT US at 0456456267 or Call 1300 GET LOAN to Book a consultation. For more information, also Read our Related Blogs here.
