Mortgage Brokers in Australia: What They Do

There’s no shortage of sellers out there when you enter the property market, and navigating the advantages and disadvantages of every mortgage on offer can be challenging to say the least, especially as a first-time home buyer. If you want to expedite the process and obtain the best type of home loan for your needs, it may be worth enlisting the services of a mortgage broker.

What is a mortgage broker?

A mortgage broker is a real estate professional who acts as an intermediary between lenders and buyers to arrange mortgages for the buyer or mortgagee. They are licensed property professionals who deal with several lenders at the same time to find the most appropriate mortgages for their clients.

According to the Mortgage & Finance Association of Australia (MFAA)’s latest Industry Intelligence Service report[1], mortgage brokers currently write more than 70% of new residential home loans in Australia. They are particularly popular among millennials, who are mainly first-time home buyers.

Depending on their size and scope, a mortgage broker may be able to offer hundreds of different products. In contrast, a single bank or other type of lender will have a far more limited number of offerings.

» MORE: How to get a home loan

What does a mortgage broker do?

Mortgage brokers specialise in finding the best loans among the products available while also assisting with the application process once they have helped you find a property.

Brokers perform several tasks within that role, including:

Assessing the buyer’s borrowing capacity
Gaining an understanding of what the buyer wants
Educating the buyer about how mortgages work with regard to interest rates, fees and charges.
Comparing suitable home loan options
Finding and tailoring solutions accordingly
Researching and understanding the best loan options
Negotiating with lenders on behalf of the buyer
Applying for loans and guiding the buyer through the whole process of buying a house
Managing the process through to settlement.

First and foremost, a mortgage broker needs to understand their customer’s financial situation before they can offer any options.

Before seeking a mortgage broker, you should prepare a wishlist of what features you want in your mortgage, how much you want to borrow, what type of property you want and where you want to live. Once they clearly understand your goals, they can find the most competitive option available for your circumstances.

A good mortgage broker will be there for their customer throughout the entire process, managing the application through to the settlement. Like lenders, they will usually require supporting documents to verify your situation.

How do mortgage brokers get paid?

Mortgage brokers usually don’t charge buyers a fee for their work but are instead paid a commission by the lender once the settlement on a mortgage is complete. The commission can vary from a standard fee to a higher one depending on the type and amount of the loan. So, as a buyer, you should be wary of a mortgage broker recommending a higher mortgage than you had envisaged.

The commission consists of two parts:

An upfront commission, which is a percentage of the total value of the loan, and
A trail commission, which is a percentage of the mortgage paid to the broker over the life of the loan.

Commissions differ from lender to lender, but the upfront commission is usually about 0.65% — 0.7%, while the trail commission is 0.165% – 0.275% paid annually.

Mortgage brokers occasionally charge the buyer a fee as well as their commission. So, it’s vital to ascertain at the outset whether you’ll be charged a fee or not. Remember, you can always shop around if you’re unhappy with what they offer.

» MORE: Costs to know when buying a house

Why use a mortgage broker?

There are plenty of good reasons to use a mortgage broker.

They’re on your side. Mortgage brokers are now under a statutory obligation to act in the best interests of their customers when providing loan assistance. The best interests duty (BID) for mortgage brokers officially came into effect on January 1, 2021, following lengthy investigations into the industry as a whole and the tactics used to sell products.
Brokers can help explain complex agreements and mortgage terms. Finding and buying a home can seem daunting for many. Mortgage brokers can provide a vital service in educating would-be home buyers about what’s involved and navigating them through the process. This education is particularly important when a buyer’s mortgage options are more limited because they may be a contractor or self-employed or have a financial situation that makes it difficult to get a more conventional loan. For a first-time home buyer, knowing what is in the loan agreement and what to expect from the mortgage terms can significantly reduce the risk and stress involved in the whole operation.
They’ll assist with the application process. A mortgage broker can explain the jargon and complexity of a home loan. That clarity will help to simplify the process and provide a straightforward understanding of the difference between competing mortgage products. Often, this means letting you know why one product is superior to another for your circumstances.
Brokers offer more choices than individual lenders. Mortgage brokers have a wide range of product options. If you go directly to one bank or lender, they are likely to offer 20 or 30 mortgage products. Usually, only three or four are suitable for you. When you use a broker, you should have access to hundreds of loan products, so they should be able to get you a better deal.
Services are usually free to buyers. As mentioned above, mortgage brokers in Australia generally don’t charge home buyers a fee. Still, you’ll need to be sure, so it should be the first thing you discuss when you contact a broker.
They may get you a deal on fees. There is plenty of competition for your mortgage dollar out there. A good broker should be able to negotiate a deal. That deal could include a waiver or reduction in initial and ongoing mortgage fees, depending on how much a lender wants your business. The fact that brokers deal with lots of lenders and are hopefully across their product range should work to your advantage as a client.
Brokers can provide ongoing services after settlement. Mortgage brokers also provide refinancing services. You may call on your broker to find you a mortgage at some point in the future if you need to refinance for reasons such as debt consolidation or purchasing another property.

How mortgage brokers may rip you off

Mortgage brokers can be polarising figures due to complications. There were plenty of bad actors in the industry to push buyers into unaffordable mortgages for their own benefit. They have also been known to exaggerate their qualifications and industry experience. It’s vital to do plenty of research before selecting a mortgage broker you feel comfortable dealing with.

» MORE: 10 questions to ask a mortgage broker

Mortgage brokers offer a range of valuable services, especially to first-time home buyers unfamiliar with much of the process and could use a helping hand along the way. However, doing your homework to ensure you choose the right one is important.

» MORE: How to find the right mortgage broker

The average gross annual income for Australian mortgage brokers is just shy of $200,000, according to MFAA data.[1]

There are about 19,236 mortgage brokers in Australia, according to MFAA data.[1]