Banks vs. Mortgage Brokers: Find the Perfect Way to Borrow

It’s always a hard choice when you have to decide between getting a mortgage through a bank or a mortgage broker. 

Even though most of us may easily assume going through an intermediary like a broker is an extra unnecessary step, 74.6% of all new home loans made in the September 2024 quarter were through mortgage brokers.

That said, banks and brokers both have their own sets of benefits and drawbacks. We’ll explore them in detail in this guide to help you choose the ideal way to get your mortgage.

Understanding the Australian Mortgage Market

Australian Prudential Regulation Authority (APRA) supervises banks, credit unions, and other financial institutions to ensure they follow responsible lending practices, including restrictions on investor loans and interest-only mortgages.

The Australian Securities and Investments Commission (ASIC) regulates mortgage brokers to ensure they comply with responsible lending laws. One such law is the National Consumer Credit Protection Act (NCCP Act), which requires brokers to act in the best interest of borrowers under the Best Interests Duty (BID).

That means both banks and brokers are strictly required to adhere to the set of guidelines provided by their respective regulatory body, ensuring you are under the protection of the Australian government in regards to receiving safe and secure home loan services.

Mortgage Brokers

Mortgage brokers stand as an intermediary between you and the bank, but they provide a few extra services to help you get your ideal mortgage solution.

Unlike banks, which can only offer their own loan products, brokers have access to a panel of lenders, so you get a broader range of choices this way.

Plus, a broker’s lender panel often includes the Big Four banks (CBA, Westpac, ANZ, NAB), as well as other smaller or regional lenders. This is helpful for borrowers with unusual financial circumstances. 

On top of this, mortgage brokers come free of cost to borrowers. However, do keep in mind that some brokers may charge broker fees or commission (which makes them not so worthwhile), so make sure to confirm the costs with your broker upfront.

Koalify helps you find the most suitable mortgage for you from 2,000+ loan options and 30+ top lending partners across Australia.

If you need someone to handle the complexities of getting a mortgage, with unbiased expert guidance that acts in your best interests, we’re here to help.

Plus, we’re free to you, with zero broker fees or commission. Contact us today!

Advantages of Mortgage Brokers

• Access to multiple lenders and loan products: Brokers have a panel of different lenders and banks, giving you the advantage of accessing multiple options at the same time.

• Potential for more favourable loan terms: Brokers leverage their industry knowledge and lender relationships to secure competitive interest rates, lower fees, and flexible repayment terms. They can also help you access exclusive options that may not be available directly from banks.

• Expert, unbiased advice: Under ASIC’s Best Interests Duty (BID), mortgage brokers are legally required to act in the borrower’s best interest. This means they recommend loans based on suitability rather than lender commissions.

• Saves you time, money, and stress: A mortgage broker handles the research, application process, and negotiations for you, saving you significant effort and time while potentially reducing loan hunting costs as well.

• Personalised service: Since brokers can access loan products from multiple lenders, they can curate the most suitable options that are tailored to individual circumstances.

• Free ongoing support: Brokers provide free support from start to finish, and even after your loan is approved.

The Disadvantage of Mortgage Brokers

One disadvantage of mortgage brokers is the potential conflicts of interest or commission-driven advice.

Established brokers only earn income in the form of commission from lenders. So whenever a loan is approved, a percentage of that loan amount is paid as commission to the broker.

And different loans yield different ranges of commission to the lenders.

With a compensation model like this, the mortgage broker may lean towards high-commission loan products and promote them to you. Even though brokers are required to follow  ASIC’s Best Interests Duty (BID), corrupt lenders may break the rules.

That makes it extremely vital for you to choose the right mortgage broker. Consider taking these 14 key questions to ask your mortgage broker to ensure they’re just and honest.

Understanding Banks

Banks are the traditional mortgage lenders in Australia, offering home loans directly to borrowers.

They are regulated financial institutions that provide a range of banking services, including savings accounts, credit cards, and investment products, alongside mortgage lending.

Advantages of Banks

• Direct relationship: Borrowing directly through banks means you get to keep a direct relationship with them. This way, a lot of the process like communication gets more streamlined.

• Potentially faster processing: In cases where you know the exact loan product you need, and you have good history with the bank, the processing time could potentially get faster.

Disadvantages of Banks

• Best interests duty isn’t applicable: Unlike mortgage brokers, banks are not bound by a Best Interests Duty. This means they may prioritise their own financial interests over tailoring products specifically to your needs.

• Limited product variety: Banks can only offer their own range of mortgage products, limiting your options compared to the diverse selections available through brokers who work with multiple lenders.

• Less personalisation: Most banks follow standardised processes so they most likely won’t take the effort to find you personalised solutions.

• May not help you in complex situations: In case you have a complex financial situation or need help understanding complex paperwork, the banks may not be so keen on helping you because they won’t have a dedicated advisor assigned to help you.

Banks vs. Mortgage Brokers: Factors to Consider

Financial Health & Eligibility

Getting approved for a loan mostly depends on your financial health. Banks and mortgage brokers take your credit score, income stability, and existing debts into consideration before approving your loan.

However, banks do follow a stricter application review process than mortgage brokers. And brokers are able to leverage their expertise and partnership with banks to make this review process more liberate.

So in some cases, going through a mortgage broker gives you a better chance of getting a loan than approaching the bank directly. But still, it’s important to note that banks do hold the higher authority to reject/approve loans based on their sole discretion.

Cost Comparison

One of the major misconceptions is assuming mortgage brokers are more expensive than banks.

That’s wrong, because getting a mortgage through an established broker costs you just the same as getting it through a bank. Established brokers do not charge you commission or broker fees. 

They instead make their money as commission from the lenders only.

In some cases, a broker may even help you yield better offers than what you’d get when you approach banks directly, given the brokers negotiation power with the lenders.

And this is where brokers get more appealing than banks, because they provide you industry expertise, unbiased guidance, and even better offers without any additional cost.

That said, there are chances you will come across brokers who’d charge you. We highly suggest you to be wary of them, since you’ll find better brokers without having to pay anything.

Make sure to always confirm costs with mortgage brokers upfront to make sure there are no broker-related costs involved.

Customer Experience & Convenience

Getting a mortgage is a complex process from start to finish. If you’re not a financial expert, chances are you’ll most likely find the paperworks to be a headache.

Banks focus more on just selling their product. So getting any help from them during the process that genuinely helps you is hard. That means customer experience and convenience is not much respected here.

Most established mortgage brokers assign you a dedicated advisor to help you navigate the complexities. They help you from start to finish, providing unbiased guidance, and clear-cut solutions to your concerns.

Banks vs. Mortgage Brokers: What’s Right for You?

The right choice for you depends largely on your personal financial situation and preferences.

But here are the common scenarios favourable for approaching a bank and broker.

When Borrowing With a Bank Is Preferable

• Familiarity: If you already have an established relationship with the bank, you may benefit from streamlined services and potential loyalty perks.

• Standard borrowing needs: When your financial profile is conventional, with stable employment, income, and strong credit history, getting a mortgage with favourable terms is easier with a bank.

When Borrowing With a Mortgage Broker Is Preferable

• Complex financial profile: Borrowers with non-traditional income sources, mixed credit profiles, or unique borrowing requirements often benefit from a broker’s tailored guidance and their ability to source niche loan products. Brokers basically navigate complexities that banks might overlook.

• Access to a wider range of options: If you need to look at various loan options from multiple lenders to identify loans with the most favourable terms for you, contacting a mortgage broker is the suitable approach.

• Need for unbiased advice: Since brokers operate under the best interests duty, they are required to recommend loans that suit your specific financial situation and needs rather than simply pushing their own products. This is very helpful if you’re unsure about which loan product fits your long-term goals.

• Time and stress savings: If you prefer to outsource the legwork of finding and comparing various loan options, and navigate the complex process from start to finish, you’d be better off with having a mortgage broker by your side.

The information provided here is general in nature and does not constitute individual financial advice. It does not take into account your personal objectives, financial situation, or needs. Kindly consider seeking independent professional advice before making any decision.

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