You can get a mortgage directly from a bank or through a mortgage broker. Both have their advantages and disadvantages.
Home loans are also available from ‘non-bank lenders’ such as building societies, finance and insurance companies, trustee companies and credit unions.
‘Non-conforming lenders’ are an option for people who can’t get a bank loan, because of a bad credit history or lack of proof of income. These lenders usually only accept applications through mortgage brokers and charge higher interest rates to compensate for additional risk.
Banks
Advantages
- Banks offer a wide range of mortgage options.
- Competition between banks can sometimes lead to great deals, such as a bank contributing to legal bills, discounting insurance, or lending at a low fixed-interest rate.
- Banks can offer discounts on day-to-day banking costs or even waive transaction fees altogether if you have a mortgage with them.
- Their loan application fees are usually negotiable.
Disadvantages
- Banks tend to be more cautious and are more likely to turn you down if you don’t have a good credit history.
Mortgage Brokers
Brokers deal with a number of lenders, so they can save you time shopping around.
Advantages
- Mortgage brokers know the interest rates and application criteria for different lenders and can negotiate on your behalf.
- Brokers can help you put a loan application together.
- They may be able to help you find a loan if a bank says no and may be able to get a better deal than if you went direct.
- All mortgage brokers are required to be regulated so you have recourse if something goes awry, and you have a complaint.
Disadvantages
- Brokers don’t cover all lenders. Some banks don’t deal with mortgage brokers.
- You have to shop around for a mortgage broker first, settle on one, and then let them shop around for you.
- If you don’t end up borrowing through a loan they find, you may still have to pay a fee. Make sure to read the fine print.
- Different lenders pay different commission rates to mortgage brokers. This means that they may prefer to place you with one lender instead of another because it benefits them more. It may not be the best deal for you, so always check their disclosures carefully.
- If in doubt, don’t!
