Mortgage Broker vs Bank: What’s the Difference?

When looking for a home loan, you can approach a bank directly or work with a mortgage broker.

Both can assist with obtaining finance, but the service they provide is different.

A bank can generally only offer products available through its own organisation, while a mortgage broker can assess your circumstances and compare suitable options from a panel of participating lenders.

What Happens When You Apply Directly Through a Bank?

When you approach a bank directly, its lending team can explain the home loan products offered by that particular institution.

The bank will assess your application based on its own lending policies, product range and eligibility requirements.

This means the options discussed will generally be limited to that bank’s own products, even where another lender may have policies, features or pricing that are better aligned with your circumstances.

You may also need to research other lenders yourself if you want to understand how the bank’s offer compares with alternatives.

By contrast, a mortgage broker can review options across multiple participating lenders and help identify which lenders may be more appropriate for your borrowing position, property goals and preferred loan structure.

What Does a Mortgage Broker Do?

A mortgage broker acts as an intermediary between a borrower and participating banks or other lenders.

A broker will generally:

• Discuss your financial circumstances and property goals

• Review your income, expenses, liabilities and available deposit or equity

• Help you understand what information and documents may be required

• Review suitable loan options available through their lender panel

• Explain relevant interest rates, fees, features and limitations

• Recommend options based on your circumstances

• Help prepare and submit the application

• Communicate with the lender during the approval and settlement process

Rather than approaching several lenders individually, you can work with one broker who coordinates the comparison and application process on your behalf.

Mortgage Broker vs Bank: Key Differences

Mortgage Brokers Must Act in Your Best Interests

Mortgage brokers are subject to a statutory best interests duty when providing regulated credit assistance to consumers.

This means the broker must act in the consumer’s best interests. Where a conflict exists between the consumer’s interests and the broker’s interests or those of certain related parties, the consumer’s interests must be given priority.

In practice, this may involve:

• Gathering information about your circumstances and objectives

• Assessing which lenders and loan structures may be suitable

• Considering relevant costs, features and limitations

• Explaining why the recommended option is considered appropriate

• Keeping records of the assessment and recommendation

The best interests duty does not necessarily mean recommending the loan with the lowest advertised interest rate.

A lower rate may come with fees, restrictions, limited features or eligibility requirements that make another option more appropriate for the borrower.

The broker may also consider matters such as loan flexibility, offset accounts, redraw facilities, fixed-rate options, lender policy and the borrower’s future plans.

A Broker Can Compare Participating Lenders

One of the main advantages of using a mortgage broker is the ability to review options from multiple participating lenders without having to approach each lender separately.

Different lenders may assess borrowers differently.

For example, they may apply different policies to:

• Overtime, bonuses and allowances

• Self-employed income

• Casual or contract employment

• Rental income

• Existing debts and credit card limits

• Dependants and living expenses

• Property types and locations

• Deposits and available equity

A borrower who does not meet one bank’s policy may still have options with another lender.

A broker can help identify which lenders may be more closely aligned with the borrower’s circumstances before an application is submitted.

Does a Mortgage Broker Compare Every Lender?

Not necessarily.

Mortgage brokers generally work with an approved panel of lenders. The number and type of lenders available can vary between brokerage businesses.

A broker’s panel may include major banks, smaller banks, credit unions and non-bank lenders, but it may not include every loan or lender available in the market.

Some lenders and products may only be available directly.

A broker should explain:

• Which lenders are available through their panel

• Which options were considered

• Why a particular lender or loan was recommended

• Whether there are relevant limitations in the comparison

A broker should not claim to compare the entire market unless that statement is accurate and can be substantiated.

How Are Mortgage Brokers Paid?

Mortgage brokers are commonly paid a commission by the lender that provides the loan.

This may include:

• An upfront commission after the loan settles

• An ongoing or trail commission while the eligible loan remains in place

Some brokers may also charge a direct fee in particular circumstances.

Any applicable broker fee should be explained and disclosed before the borrower agrees to proceed.

You can also ask whether different lenders pay different commission amounts and how potential conflicts are managed.

Using a broker should not automatically be described as free because lender fees, government charges, valuation costs or a separately disclosed broker fee may still apply.

Who Decides Whether Your Loan Is Approved?

The lender always makes the final lending decision.

A mortgage broker can help prepare the application, present the required supporting documents and identify lenders whose policies may be relevant to your circumstances.

However, a broker cannot guarantee approval, a particular loan amount or a particular interest rate.

The lender may assess:

• Your income and employment

• Your expenses and financial commitments

• Your credit history

• Your available deposit or equity

• The property being purchased

• The proposed loan amount and structure

• Whether the application satisfies its current credit policy

Pre-approval is also generally conditional and does not guarantee formal approval.

The lender may reassess the application if the borrower’s circumstances change, new information becomes available or the property does not meet its requirements.

Benefits of Using a Mortgage Broker

A mortgage broker can provide support throughout the borrowing process, from the initial discussion through to settlement.

Potential benefits include:

• Access to a panel of participating lenders

• Assistance comparing relevant interest rates, fees and loan features

• Guidance on which lenders may suit your circumstances

• Help understanding different loan structures

• Support gathering and preparing application documents

• A single point of contact during the application

• Communication with the lender, conveyancer and other parties where appropriate

• Assistance reviewing an existing loan when refinancing

• Ongoing support as your financial circumstances or property goals change

A broker may be particularly helpful for borrowers who are time-poor, unfamiliar with the lending process or have circumstances that may not fit every lender’s standard policies.

Questions to Ask Your Mortgage Broker

Before proceeding, useful questions may include:

1. Which lenders are available through your lender panel?

2. Which loan options did you consider?

3. Why is the recommended loan considered suitable for my circumstances?

4. What interest rate and comparison rate apply?

5. What upfront, ongoing and discharge fees may apply?

6. Does the loan include an offset account or redraw facility?

7. Are there restrictions on additional repayments?

8. How is the broker paid?

9. Are there any broker fees?

10. What conditions must be met before formal approval?

11. What could cause my repayments to increase?

12. What happens after the loan settles?

Asking these questions can help you better understand the recommendation and the ongoing costs and features of the proposed loan.

Why Work With a Mortgage Broker?

A mortgage broker can offer more than access to a home loan application.

The broker can help you understand your borrowing position, identify suitable options from participating lenders and guide you through a process that can otherwise involve contacting and comparing multiple lenders independently.

Because lender policies vary, the ability to assess options across a panel can be particularly valuable.

A broker can also help explain the differences between loan structures, repayment options, rates, fees and features so you can make a more informed decision.

The final loan selected will still depend on your circumstances, eligibility and the lender’s assessment, but a mortgage broker can help make the comparison and application process more informed, organised and manageable.

Speak With Homefront Mortgages

Homefront Mortgages assists first-home buyers, property investors, refinancers and existing homeowners.

We can discuss your objectives, review suitable options available through our lender panel, explain relevant loan features and assist throughout the application and settlement process.

We do not represent every lender or loan available in the market.

The final decision to approve a loan, including the interest rate, loan amount and conditions offered, is made by the lender.

Important Information

This article provides general information only and does not constitute personal financial, tax or legal advice. It does not take into account your objectives, financial situation or individual needs.

Before acting on this information, consider your circumstances and obtain appropriate professional advice.

Loan approval is subject to lender assessment, eligibility requirements, satisfactory documentation and applicable lending criteria. Interest rates, fees, terms and conditions may change. Fees and charges may apply.