When it comes to financing a property, there are generally two options. You can visit a bank, or you can work with a mortgage broker.
While it may appear relatively straightforward to go to the bank you are most familiar with, the loan you ultimately obtain will affect your finances significantly. Therefore, it is worth understanding the differences between banks and mortgage brokers.
The primary business of banks is to both take receipts and provide loans. Banks provide mortgage options for borrowers while accepting deposits for interest amounts lower than those charged on mortgages.
Staff are usually paid on a salary and given a bonus based on meeting targets.
Brokers are often self-employed individuals who are paid once a client is successfully matched with a finance solution that meets their needs. Often, a broker’s income is dependent entirely upon the number of successful clients helped in a particular period. Brokers make the majority of their business from repeat and referral clients.
Having established how each of these providers work, let’s consider the key differences between the two.
A significant disadvantage in working with traditional banks is the limited availability of loan options. A banker is usually almost always limited to the financial products provided by their particular bank and employer.
Brokers, in contrast, have access to potentially endless lending options. It is not uncommon for high performing brokers to have strong relationships with at least 20 to 30 different lenders. This exposes clients to more options, particularly for clients who pose certain risks, such as having low credit scores.
It is a common misconception that loan applications are straightforward box-ticking procedures. On the contrary, loan applications, also called application packages, involve a large element of skill in matching applicants with lender profiles such that the right lender is receiving a loan of interest to their investment parameters and risk profile.
In addition, a loan application can be written in a variety of ways, emphasizing different elements of a borrower’s profile. This can lead to significantly different outcomes, such as a loan being rejected, or accepted at much higher interest rates.
Experience between brokers and bankers can vary, depending on the individual. For this reason it is recommended that whichever option you pursue, be sure to work with the most experienced professional possible. This ensures your best chances of success and getting the most competitive rates.
Balance of power
While not often discussed, the balance of power in lending relationships can differ between brokers and bankers. While bankers are often able to provide some flexibility regarding loans provided by their employer, financing solutions provided by a bank can often provide less flexibility in order to account for marketing and administration costs.
Brokers on the other hand, have relationships with many financial institutions which can provide a competitive environment in order to win your business.
A common reason that borrowers approach their existing bank is due to the trust of their familiar banking institution. Despite this, it is unfortunately not often realized that the longevity of an account with a financial provider impacts significantly on your loan application.
Given the conditions under which brokers operate, a broker is often more prepared to work in order to gain and maintain a prospective borrower’s trust. The majority of a broker’s future business comes from repeat and referral clients. This means your broker is likely to be more motivated to ensure your experience is successful so that they can secure their working relationships and encourage future referrals.
When it comes to convenience, working with your banker can afford some advantages over a broker. Working with your local bank allows you to manage your other financial requirements in one location, such as credit cards and savings accounts.
However, brokers are independent agents, working longer hours and potentially weekends – far beyond a traditional bank. This can be more suitable for clients who have longer work hours and prefer to deal with personal financial matters on a weekend.
In addition, your broker may even be able to secure a loan with your bank at a more favorable rate provided by the bank themselves, allowing you to maintain the convenience of handling all your financial matters at your local bank.
Finally, a broker will be focused on ensuring your application is as smooth and stress-free as possible. Given that a broker is motivated to successfully complete your financial dealings, it is more likely that you will be provided with additional support regarding your application strategy and requirements than a banker.
When looking to secure financing for your property transaction, be sure to select the best provider for your circumstances. For many, having access to a dedicated service professional to help you plan and apply for a variety of financial products makes all the difference in obtaining the most competitive loan with minimal effort.