Article by Mozo
Mortgage brokers can offer a valuable service if you’re searching for a home loan. They can make the whole process a lot easier, smoother and sometimes, a lot cheaper. But because our main aim at Mozo is to save you money, we can’t help but dig into just what exactly it will cost you for the convenience.
Read on for a rundown of how using a mortgage broker will affect the cost of your home loan - and then decide for yourself if it’s worth it.
Generally speaking, mortgage brokers don’t charge you a fee, although some do, so it’s important to shop around and make sure you’re getting the best deal possible. There are heaps of mortgage brokers who don’t charge you a thing, like Mozo’s resident home loan negotiator, Steve - so there’s really no reason to be paying unnecessary fees.
Although fees aren’t usually something you’ll have to take into account when choosing a mortgage broker, you do have to consider how they’re getting paid, because it can have an effect on your home loan and what advice they give you.
Mortgage brokers are people too - they need to feed their families and pay their bills. They’re not helping you negotiate a better home loan deal from the goodness of their hearts. Brokers usually work on commission, which can come in two parts: the upfront commission and an recurring monthly commission.
The upfront commission is the most common, and the amount varies from lender to lender, between 0.3-0.7% of the loan value. So, for 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 recurring commission is based on the remaining loan amount for each year of your home loan and paid to your broker on a monthly basis. This type of commission is less common, and pays a smaller percentage, often less than 0.3%.
The important thing to remember about these commissions, is that each lender offers different rates. So, if your mortgage broker stands to make a 0.3% commission from one and a 0.7% commission from another, guess which one they’re going to recommend?
The fact of the matter is that your broker may not be totally objective in their advice, because some lenders or home loans will secure them a better commission, but may not be the best deal for you.
It’s also important to know that if for some reason you cancel or refinance your home loan within the first 12-18 months, your mortgage broker will often be required to refund their upfront commission. Why does that matter to you? Because it means that often your contract with the mortgage broker will state that if this happens, you would have to pay the mortgage broker back for that refund.
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 on the other hand, they may steer you toward a home loan that’s better for them than you. You can always opt to do some D.I.Y research on your home loan instead, which can sometimes save you money, because small online lenders who often don’t deal with many - or any - brokers can often offer significant savings.There are heaps of resources to find your own red hot home loan deal, including:
While a mortgage broker can be a helpful service for some homebuyers, they’re certainly not for everyone. If you’ve got the time and inclination, you can certainly score yourself a great home loan by comparing home loans yourself. And if you’re worried about missing out on the insider deals a mortgage broker might have access to, check out the Mozo mystery bank deal, for rock bottom rates from a bunch of providers.Mortgage broker guides