Bank vs broker: which is best?
When searching for a home or investment property loan, buyers will generally weigh up between two options: applying for the loan directly with the bank, or enlisting the help of a mortgage broker to compare products from different lenders. Whilst the end game is essentially the same, how and who you choose to apply for your loan can have a significant impact on the final rates and benefits you receive. So what are the key differences between brokers and banks? And how could a specialist mortgage broker better serve your long-term investment goals?
One of the biggest differences between banks and mortgage brokers lies in the range of products each service provider offers. Since they are aligned to their own lending solutions, banks will only have access to their products and will adhere to their own unique lending policies. Essentially, this means you’re only being shown a fraction of the hundreds of lending products on the market, and you could be missing out on better rates or benefits from alternative lenders. Mortgage brokers, on the other hand, have access to a broad range of products from different lenders. Since they aren’t aligned to one particular bank, brokers will be able to compare the products and policies of each lender to help you find the loan solution that best suits your individual needs and goals. These options can be particularly important in the modern lending environment especially, as APRA changes and the banking royal commission are creating tighter lending conditions that are limiting many customers’ eligibility for certain products. Whilst this could leave you in a tough position if you don’t meet your chosen bank’s lending criteria, mortgage brokers will be able to search the market for alternative loan solutions that better complement your circumstances.
Brokers work on behalf of the client
One of the reasons that many Australians enlist the help of a mortgage broker over a bank is that brokers generally don’t hold preferences towards one particular product or institution. Whilst bank staff work in the primarily interests of their own company and products, brokers effectively serve as an agent for the client, and will assess both the positive and negative features of a loan before recommending a given solution. This enables the broker to find a solution that really fits the client’s investment strategy, as opposed to selecting the best solution out of a limited range of products.
This difference can also have critical implications on the way each institution structures a loan. A good mortgage broker with a thorough understanding of their client’s investment needs will always look to structure a loan in a manner that supports their long-term goals and enables them to move forwards in their investment journey. Banks, on the other hand, will often look to structure a loan in a way that mitigates risk for them. In some cases, this can lead to issues such as cross-collateralisation, whereby more than one property is used as security against a loan. Whilst less risky for the banks, this can lead to big issues down the line should an investor wish to sell one of the properties under the mortgage contract, and it could also hinder their eligibility for future property investment loans from other lenders.
Whilst both banks and brokers can help you secure a great home loan deal, brokers offer an additional service that simply isn’t available with lenders – guidance throughout the entire lending process. As well as saving you the time and hassle involved in comparing different lending products, brokers will navigate the entire loan process for you and follow up with lending institutions on your behalf. This guidance can be particularly useful for first-home buyers with less experience and understanding of the steps involved in securing finance. If you are purchasing a property for investment purposes or buying a home with the intention of later turning it into an investment property, this is where selecting a mortgage broker who specialises in investment finance can really make or break your success. A good mortgage broker will take your long-term goals into account, and will have a thorough understanding of the structures and loan features that support your wider investment strategy as well as your short-term situation.
Expert finance solutions
At Momentum Wealth, we understand the importance the right property finance plays in supporting your wider investment strategy. For more tips on laying the right foundations with an effective property finance strategy, download our Beginner’s Guide to Property Finance.
For more information about our mortgage broking services, or to speak to one of our specialist mortgage brokers about your finance needs, book a consultation with a Momentum Wealth finance specialist today.