Brokers vs banks: which is the better choice for your mortgage?

Working with a bank

Going directly to a bank means applying for a loan from a single lender. Here’s what you need to consider:

Advantages:

1. Established relationship – If you already bank with the lender, you may receive exclusive deals or discounts.
2. Direct communication – You work directly with the lender, eliminating intermediaries.
3. Faster decision-making – Banks have full control over the approval process, which can sometimes result in quicker responses.

Disadvantages:

1. Limited options – Banks can only offer their own loan products, which may not always be the most competitive.
2. Strict lending criteria – Some banks have rigid lending policies that may not accommodate self-employed borrowers or those with unique financial circumstances.
3. Lack of personalised service – You may deal with different staff members over time, leading to inconsistencies in service.

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Using a mortgage broker

Mortgage brokers act as intermediaries between borrowers and multiple lenders, shopping around for the best loan options on your behalf.

Advantages:

1. Access to multiple lenders – Brokers have a panel of lenders, increasing the chances of finding a suitable loan with competitive rates.
2. Tailored advice – Brokers assess your financial situation and recommend the best options based on your unique needs.
3. Assistance with paperwork – Brokers guide you through the application process, making it less stressful.
4. Negotiation power – Brokers may be able to secure better deals or interest rates than if you went directly to a bank.

Disadvantages:

1. Broker fees and commission – Some brokers charge fees (we don't here!) or receive commissions from lenders, which could influence their recommendations.
2. Variable service quality – Not all brokers are equally skilled or transparent; choosing the right one is crucial.
3. Possible delays – Since brokers act as middlemen, additional processing time may be required compared to dealing directly with a lender.

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Which option is better?

The choice between a broker and a bank depends on your personal situation. If you prefer a straightforward process and already have a strong relationship with a bank, applying directly might be a good choice. However, if you want to explore a wider range of loan options, need assistance with paperwork, or have a complex financial situation, a mortgage broker may be a better option.

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How online serviceability calculators work

Online calculators estimate your borrowing power based on factors like income, expenses, debts, and interest rates. They provide a rough idea of what you might qualify for but lack the full complexity of a lender’s or broker’s assessment.

Limitations of online calculators:

1. Simplified assumptions – Many calculators use standard assumptions for expenses and interest rates, which may not align with lender policies.
2. No consideration for credit score – Most online calculators do not factor in your credit history, which plays a crucial role in loan approval.
3. Excludes specific lender criteria – Different banks have different serviceability calculations, including how they assess rental income, casual employment, or self-employed income.
4. May overestimate or underestimate borrowing power – Since calculators do not factor in all lending criteria, they may not provide an accurate figure.

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How broker serviceability calculators differ

Brokers use more sophisticated calculators that consider lender-specific policies and real-time data to provide a more accurate borrowing estimate.

Advantages of broker serviceability calculators:

1. Lender-specific calculations – Brokers have access to multiple lenders' criteria and can provide more tailored estimates.
2. Inclusion of credit score and liabilities – Unlike generic online calculators, broker tools assess your credit score and debt-to-income ratio more accurately.
3. More realistic expense assessments – Brokers take actual living expenses into account rather than relying on broad estimates.
4. Assessment of multiple scenarios – Brokers can test different lending scenarios across multiple lenders, giving you a clearer picture of your options.

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Which should you rely on?

Online serviceability calculators are a helpful starting point but should not be solely relied upon. Broker serviceability calculators provide a more accurate picture of what you can borrow because they incorporate lender-specific criteria and personalised financial details. For the most reliable information, consulting a mortgage broker is highly recommended.

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Both mortgage brokers and banks have their advantages, and the right choice depends on your financial needs and preferences. Brokers provide access to multiple lenders and tailored advice, while banks offer direct access and possibly quicker approvals. Similarly, while online serviceability calculators can give a rough borrowing estimate, they lack the precision of a broker’s serviceability calculator. For the most reliable information, consulting a financial professional is always recommended.