In the Australian mortgage market, brokers play a role in around 40 per cent of mortgages – a big part of the industry. Many first home buyers ask me what the benefits of using a mortgage broker are, as opposed to going straight to one of the big banks. I’d like to detail some of the benefits of finding a mortgage through a mortgage broker, and outline a few issues you should think about. 

Mortgage brokers 

Mortgage brokers are essentially intermediaries. Brokers match the needs of home borrowers to the home loans offered by lenders. Their job is to look after borrowers, but they get paid by lenders, which means precisely who they work for can be a grey area. 

So, what are the benefits of using a good mortgage broker? 

1. They have access to a big range of mortgage companies (called their ‘lending panel’) and a detailed knowledge of the loans they broker.
2. They take the time to understand your objectives and needs – matching them against their loans to suggest one with the right features and the lowest cost.
3. They undertake the legwork, wading through the hundreds of loans available on the market, including those from lenders who are less well known.
4. They assist you to fill out your paper work correctly, and keep you up to date on the progress of your mortgage application.
5. They are handy advisers and mentors, especially for first home purchasers or for those who don’t meet mainstream lending criterion.
6. They stay with you for the life of your loan and they can also help you to negotiate further mortgage refinancing as your needs develop over time. 

Before turning to a broker, however, there some things you should understand: 

1. Brokers make a living by broking mortgages. They earn upfront as well as trail commissions (over the life of a mortgage) by selling a home lender’s products. These commissions will vary from lender to lender, and could influence a mortgage broker’s recommendation to you. Bear in mind that the more you borrow, the more the broker earns, so be careful not to overstretch.
2. Brokers may be independently owned, but they are unlikely to be truly independent. To be so would mean recommending loans without receiving commissions. As they are in the business of making money, this is not going to happen.
3. Home lenders impose volume targets on their mortgage brokers. To keep their accreditation, brokers must sell a certain number or value of home loans each year. At times, this may affect their recommendations.
4. Mortgage brokers are not financial advisers. There is no rule that says they are obliged to find you the very best mortgage.
5. Some home lenders do not allow brokers to sell their very best mortgages, so sticking with a broker means you could miss out. To prevent this, go online to check the competitiveness of the mortgage your broker suggests.
6. Brokers vary in size, from one man operations to massive businesses. Brokers have different levels of skills and expertise. Their service quality and the size of their lending panels can differ greatly. 

So, how can you make sure you’re dealing with a good broker, not a bad one? Here are some questions you might ask your broker: 

1. Do I need to pay? The services of most brokers are free. Be careful about brokers who want to levy upfront fees without any guarantees of service.
2. Are you accredited? Be certain that your broker is a member of an industry organisation like the Mortgage and Finance Association of Australia (MFAA). Membership subjects them to rules about conduct and signs them up to dispute resolution and ombudsman schemes.
3. What are your professional qualifications? Be sure your mortgage broker has some type of academic, industry or professional qualifications. Ask how many years they’ve been in business.
4. Which home lenders are on your panel? Find out which home lenders your mortgage broker can select from. Ask which lender(s) the broker writes the most loans with and why.
5. How are you paid? Get the broker to explain how their commissions work, including any other benefits.
6. How will you choose the best mortgage for me? No two personal situations are the same, so your broker must take your circumstances into account. Always get any recommendation they present in writing.
7. Are you a home lender? Check that your broker is not suggesting their own products. If they do, ask why. Compare the cost and features of the mortgage and judge whether their suggestion makes sense.
8. Do you have Professional Indemnity Insurance? Be certain that your broker is insured – it’s okay to request to see their certificate.
9. Can you provide references? Ask to speak with a few of the broker’s recent customers. This can be a solid measure of the quality of their service.

10.  How will you handle my personal information? Be sure that your potential broker complies with the Privacy Act. Ask for a copy of their privacy policy. 

While they’re never 100 per cent independent, the overwhelming majority of mortgage brokers are experts and their services offer many benefits, particularly for first home buyers. 

Deciding whether to use a broker is an individual choice. If you believe you would benefit from what a mortgage broker can deliver, be sure to choose carefully. Don’t be too shy to ask questions and make sure you’re satisfied that the loan suggested is the loan that’s right for you. 

Pete Boehm is co-founder of Our Home Sweet Home – a home buyer and property investor resource where you’ll find home loans, mortgage calculators, guides and more. If you’re looking to buy your first home sign up to Our Home Sweet Home’s free seven week e-mail course 7 Steps to Home Ownership. Follow Pete on Twitter or join the conversation at the Our Home Sweet Home Blog. You can also ask Pete a question.