First things first: What is a mortgage, anyway?
A mortgage is a legal agreement where the lender – a bank or a non-bank lender – lends money with a particular interest rate to the borrower so that the borrower can obtain a property. In exchange for lending money to the borrower, the lender gets the title of the borrower’s property. Once all the debt is paid off, the lender no longer has this title. This is what it means to say, “I’ve paid off the mortgage”.
It can take years or even decades to pay off a mortgage, depending on the size of your loan, and the size and frequency of your repayments.
What is a mortgage broker?
A mortgage broker is an individual or company that acts as a middleman between the borrower and the lender. The borrower is usually an individual who wants to buy property, while the lender is a bank or a non-bank lender.
A mortgage broker’s job is to negotiate the loan on the borrower’s behalf to ensure the borrower gets the best deal possible.
The mortgage broker is in charge of overseeing the application and settlement processes, as well as researching the variety of home loan products currently on the market.
Typically, the borrower does not pay the mortgage broker a service fee, because the broker is given commission by the lender when a mortgage is initiated.
Pros and cons of having a mortgage broker
Using a mortgage broker can have several benefits. First of all, they can guide you step-by-step through the application process. Given their experience and extensive knowledge of the market, they can give you professional advice on your options and make you see the pros and cons of each product on the market. This can be very useful for something as important and complicated as a mortgage.
They can also do the research for you and search available loans currently available on the market, which will save you time and effort. From there, they can help you decide which home loan would best suit your particular situation.
On the downside, you should remember that mortgage brokers also act on behalf of the lenders, who pay commissions to brokers in return for business that gets sent their way. So it’s possible that some brokers might be biased towards lenders that pay higher commissions.
Also, no mortgage broker is accredited to work with every single lender market, so it’s possible that any loans a broker recommends to you won’t be the best in the Australian market.
Some mortgage brokers also might not have the best qualifications compared to other brokers, so be sure to research well before settling for a particular broker.
One last thing…
While mortgage brokers might offer most value to inexperienced first home buyers, they can also offer help to experienced consumers who want to buy a new home or investment property, or refinance their current home loan.