Mortgage brokers can offer a valuable service if you’re searching for a home loan. They can streamline the whole process and sometimes even make it cheaper. But because our main aim at Mozo is to save you money, we thought we better dig into the details to clarify exactly what these services could cost you.

Read on for a rundown of how using a mortgage broker could affect the cost of your home loan, and then decide for yourself if it’s worth it.

What fees will a mortgage broker charge me?

Mortgage brokers usually don’t charge you a fee directly, although they can if they choose to structure their business this way. Even if fees aren’t part of the equation when choosing a mortgage broker, you do have to consider how they’re getting paid. It could have an effect on the advice they give you and therefore the overall cost of your home loan.

How do mortgage brokers make their money?

Brokers usually work on commission that’s paid by banks and lenders as a percentage of the loan amount you take out. This can come in two parts: the upfront commission and a trailing commission.

The upfront commission is the most common, and the amount that’s paid to brokers varies between lenders. As an example, if you ended up taking out a $500,000 home loan and your broker was working on a 0.5% commission, they would make $2,500 straight up.

The trailing commission is an ongoing payment also made by the bank or lender, and is generally a smaller percentage (usually around 0.15%) of the remaining loan amount for each year you hold the home loan. The 2017 Royal Banking Commission recommended the removal of this commission structure, but changes are yet to take place so it’s still an option for brokers.

How do broker commissions affect my home loan?

The important thing to remember about these commissions is that each lender can offer different rates. So, if your mortgage broker stands to make a 0.3% commission from one lender and a 0.7% commission from another, they may take this into consideration before recommending a mortgage to you.

However, brokers are obligated to be transparent around these facts, so you can question a choice if you’re concerned.

It’s also essential that you still compare other home loan options available in the market even if you’re using a broker. There are some lenders which don’t offer mortgage broker commissions, which means they can’t be compared through brokerage services. These often include low-cost online mortgage lenders, which can present more affordable offers since they have fewer overheads than major banks.

Will I save money on my home loan with a mortgage dealer?

That’s a tough one to answer. It depends on your broker, what deal they secure for you, and how much work you’re willing to put into doing your own research.

If you go with a mortgage broker, they may have access to deals you wouldn’t have otherwise. But if you’ve got the time and inclination, you can do the research yourself and potentially get a great deal from those online lenders not accessible through a brokerage.

Tips for using a mortgage broker

• First things first, you should be looking for low interest rates (and importantly low comparison rates), because just a small change in rates can mean big dollars. And if you’re looking for the lowest cost loans, let your broker know – otherwise they might be investigating options which prioritise other features.
• Ask your broker to disclose to you any fees, payments and commissions to do with their suggested home loans, so you can judge the situation for yourself.
• Get your broker to walk you through the fees and features of the home loans they suggest. The devil’s in the details, and you may not understand all the financial and legal jargon, so take your time with this.
• Compare the offers from your broker with online research. If you can find a home loan with a better interest (and comparison rate) on Mozo, you can ask your broker to justify their recommendation. This way you can glean more insight into the special deals brokers might have access to, and whether or not they outstrip your own bargaining skills.
• Get recommendations. Find a mortgage broker you trust, either by going with someone who has been recommended by friends or family, or by asking brokers for the contact details of some of their past clients so you can get a review of their work.

Source: Mozo