Are you looking to finance real estate in Australia this year? Maybe it’s your first home – or you’re looking to invest or develop property yourself. Either way, you’ll need to apply for some kind of loan or finance. In Australia, the banking and finance industry is dominated by the “Big 4” banks – Commonwealth, NAB, ANZ, and Westpac (in order of market cap.)
Our first instincts are to approach the bank we have our deposits or do our business banking with to finance our loans. But there are many alternatives out there that can help drive a better overall deal, striking a balance between features, interest rates, fees, and loan terms.
Going with a bank – direct lending
Selecting a bank for your home loan or real estate finance is known as going to a “direct lender” – some direct lenders may not be banks but private lenders or credit unions instead. The bank usually offers a range of loan products that may be tailored to suit a borrower’s needs. Since the lender works directly with the customer, they can talk to each other without having to go through someone else to get their message across. You’ll deal with them directly when it comes to your loan application, credit check, eligibility assessment, due diligence, and ongoing account keeping and other administrative tasks.
However, how do you know that the bank’s rates are the best you can get without shopping around? This is where a mortgage broker may be right for you.
Mortgage brokers – big or small
A mortgage broker is a separate entity to a bank or direct lender that helps prospective borrowers find a loan from their lending panel – a direct connection between multiple banks and lenders instead of trying to source a loan from just one bank. Having a panel of lenders instead of just one gives you access to dozens of different loan products which may end up cheaper or more flexible than what your bank could offer you. Thanks to the rise of technology, even smaller mortgage brokers can access credit aggregation services, such as Optimise Finance which can give them access to top tier lenders and a broad range of direct lenders in general. This means you can gain as much advantage from a small mortgage broker from a larger one.
Just like a direct lender, you’ll also be dealing with them for the loan application and as a point of contact for maintaining the loan. Some mortgage brokers are paid by commission for the sale while others get “trail” commissions for ongoing business – which can affect your overall costs.
Which is better?
On the main, a broker gives you more freedom and flexibility as they will conduct research on the best loans that are available to you given your current financial situation. A broker will also know all the ins and outs of streamlining your approval process so it’s just as fast – or in some cases faster – than a bank or direct lender. Though some brokers don’t disclose their commission structure, going to a bank means you will not have to pay additional fees or charges that may be taken as a commission or avenue to make profit. Knowing this in advance also means you may have negotiation room with your bank as they may fight to keep your business.
What to look for
When looking for a mortgage broker, they should have an Australian Credit Licence and be part of the Mortgage and Finance Association of Australia. If they do not have either of these two memberships, walk away. Remember to look for online reviews for banks or brokers so you can evaluate whether they will do right by you.
Remember, if you’re ever unsure, always consult a financial adviser so you can have a trouble-free experience financing your property!