Do you really need to use a mortgage broker? If you’re after a home loan, it’s a valid question. For when it comes to mortgages, there’s really only one thing most of us care about: interest rates.
Sure there are differences in rates between lenders, and some differences between mortgages. But there aren’t that many lenders or mortgage products available in New Zealand.
As you can see from the table of data below. There are only five main players in the residential home loan market:
The Big Five banks
|Bank of China||$1,093.5m|
|China Construction Bank||$777.8m|
According to the latest Reserve Bank statistics, the Big Five banks currently have over $270.3bn of home loans sitting on their books. This compares to just $13.4bn collectively for the next six biggest lenders.
Given the Big Five’s dominance, why not just do your own home loan research? Thanks to Canstar’s great home loan comparison’s tools, it’s super simple to hunt down the banks and mortgages offering the lowest rates. For more details, just click on the button below:
And once you’ve a fair idea of what’s on offer, from there it’s simple to call around and ask for a deal. Indeed, in the current market, most bank mortgage products are pretty similar.
If you’re already a home-owner and are just rolling over a current mortgage, the lack of a point of difference between lenders makes the use of a mortgage broker even less imperative.
At time of writing, according to Canstar’s home loan comparison tool, four of the top five big banks in our table are offering home loans at the same rate: 2.49%. Only Kiwibank is charging more, 2.55%, but even then say they’re open to bargaining!
So, coming back to the original question: why use a mortgage broker? Well, if all you’re after is a standard vanilla-flavour mortgage, you don’t really need to. You can approach a lender directly.
But if you’re after something a bit more exotic or, perhaps, you’re a first-home buyer with limited financial knowledge, a mortgage broker’s expertise and guidance can help smooth the whole home-buying process. Here’s all you need to know about what a mortgage broker has to offer:
What is a mortgage broker?
A mortgage broker is a financial adviser who specialises in helping people find a home loan. They can also manage the application process for you and provide tailored advice along the way, helping you secure the loan.
What does a mortgage broker do?
A mortgage broker is essentially a conduit between you and the lender. Their first job is to assess your financial affairs, put together a picture of your credit-worthiness, and help you determine what type of home loan is right for you.
They should offer you a variety of home loan options from the panel of home loan lenders they act for. Remember that brokers generally don’t offer you mortgages from all lenders. They only represent a limited number of financial institutions.
A good mortgage broker should spend time understanding your home-ownership goals, clearly explain your options and help you with the paperwork.
Why use a mortgage broker: the pros & cons
As a go-between for borrowers and lenders, mortgage brokers can be very useful if you aren’t confident in your understanding of finance or mortgaging. They’re especially helpful if you aren’t an existing homeowner with a well-documented income source.
For example, if you are self-employed or an investor, a lender will typically want to see more evidence of your financial status. A mortgage broker can assist you pull together the paperwork and help at every stage of the application process.
However, before you rely on the expertise of any financial advisor, it’s important to carefully consider their credentials. Do they have the relevant qualifications and experience necessary to find you the best mortgage product.
Pros of using a mortgage broker
- A mortgage broker can be an invaluable resource for those with a poor understanding of the finance and mortgage industry, or their own financial affairs
- A broker may be able to find you a mortgage that’s better for your individual situation and affairs
- If you don’t have the time to do the extensive research required to properly assess the variety of home loan products available, a mortgage broker can do this for you (within the panel of products they sell)
- Because a broker works across a number of loan products, they will be able to give you a clear picture of any incentives/deals being offered by lenders for your business
Cons of using a mortgage broker
- Mortgage brokers act on behalf of the lenders that pay them and, as a consequence, may only show you products from a small number of providers. This may not give you a fair idea of the range of suitable products
- Educational qualifications and industry experience can differ widely between brokers, so make sure to enquire about this before you engage the services of any mortgage broker. All mortgage brokers must be Authorised Financial Advisers. You can check their credentials at the Financial Market Authority’s website
What to ask a mortgage broker
1. How many lenders do they deal with? There is no point in going to a mortgage broker that recommends products from only two or three lenders. You could compare far more products than that by yourself, quickly and easily, by using our home loans tables. It’s also worth asking whether they’ve a bias towards any particular lender and, if so, why.
2. What are their fees and commissions? The question above leads naturally to this: how much commission do they receive for referring your business to a lender? Although most mortgage advisers provide their services for free, some do charge a fee, so it’s best to check this when you meet. If your broker is an Authorised Financial Adviser, which they should be, they are also legally required to tell you about their fee and commission details.
3. What will your additional costs be? As we mention above, although most brokers don’t charge fees, there are plenty of other costs associated with securing a mortgage. For example: loan application fees, property valuation fees and, possible, lenders’ mortgage insurance. It’s a good idea to discuss these costs with your broker at the start of the loan application process.
Does your broker understand your needs?
It’s great to ask your mortgage broker lots of questions, but you’ll need to answer some, too. In order for them to recommend a suitable loan, they’ll need to understand your requirements.
Why are you looking for a loan? Are you going to stay in the property for a long time? Are you planning renovations? Giving your broker a sense of your goals will help them find a loan that suits your needs.
Regardless of whether you decide to work with a mortgage broker or not, you can compare home loans available on the market with our comparison tables. You can see a snapshot of floating loans available for refinancing below, sorted by current rate (lowest to highest) and for a loan amount of $350,000 in Auckland. If you’re interested in comparing other home loans, you can use our comparison tables here.
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