Mortgage broker v bank: Which is best for your investment property loan?

And while the end game is essentially the same, how and who you choose to apply for your mortgage can have a significant impact on the final rates and benefits you get. 

Working with a mortgage broker can offer a wider array of options and streamline the mortgage process. But on the one hand, working directly with a bank will give you more control and lower costs. 

So, is it worth hiring a mortgage broker to help you find a good deal for your investment property loan? Or should you skip the middleman and go directly to a bank?

In this article, we look at the key differences between brokers and banks in terms of services, loan options and more.

Working with a mortgage broker 

If you’re planning to work with a mortgage broker, it’s important to understand how the process works when you choose this route. 

By working with a broker, a borrower can access expert help from a professional who has their finger directly on the pulse of the lending market. 

A mortgage broker is essentially a middleman who serves as a mediator between the borrower (you) and the lender. This means that brokers do not have their own financial product to sell but will only act as a liaison between you and their lending partners to help you secure the best deal suited to your needs and circumstances. 

Essentially, their main task is to guide you through the various mortgage options that can be accessed through their network of lenders by helping you compare rates, fees and features.

To do this, a mortgage broker will assess your financial situation and your creditworthiness to have a clearer understanding of your borrowing capacity. 

Pros of using a mortgage broker

There are several advantages to using a mortgage broker versus a bank. Some of these include: 

• A larger selection of loans. If you work with a bank loan officer, they will only present you with the mortgage products that the lender currently offers. On the one hand, brokers offer choices to a wide range of lenders. 
• Can help with approval. When seeking a mortgage through a bank, a broker can also advocate on your behalf, boosting your chances of getting greenlit for a loan. This is especially useful if you have a low credit score or extenuating circumstances that make it difficult for you to get a loan on your own.
• Assist with prep work. You can begin working with a broker early in the property purchasing process. Aside from answering your questions about getting a loan, they can also help you collect all the necessary documents and information you will need to apply for a mortgage. 
• Customised assistance. Whilst both banks and brokers can help you get a great home loan deal, brokers offer an additional service that simply isn’t available with lenders – personalised guidance throughout the entire lending process. They will meet with you (either in person or virtually), explain over loan options, highlight points of comparison (e.g. interest rates, payment terms etc) and support you in making an informed decision.
• Convenience. It’s no secret that mortgage applications can be overwhelming and a time-intensive process. Even after doing all the due diligence to find the right loan for you, the actual loan application and closing process can be tedious, with lots of back-and-forth and requests for documents. A broker helps get your application paperwork together with a minimum of confusion, saving you time and stress.

Cons of working with a mortgage broker 

There are also downsides to working with a broker for your loan, such as:  

• It can be time-consuming to find the right broker for you. Due to the sheer number of brokers available in the market, it can be difficult to determine which brokers have the right set of skills or experience that will suit your needs. 
• Not every loan option will be on the table. While mortgage brokers have access to a wide network of lenders, it’s important to remember that not all lenders work with mortgage brokers. That means your lending pool may not be as big as you think.
• Increased costs. Borrowers could pay up to 2 per cent  to 5 per cent of the loan’s value in commissions. This is in addition to any fees that the lender charges for your loan.

Working with a bank as a direct lender

Banks have their own set of mortgages that they can offer to borrowers. The availability of loan options will depend on the bank.

When you directly go to a direct lender or a bank for your mortgage, you will be referred to a bank loan officer. Bank loan officers work for one specific bank or lender and often receive volume incentives when providing clients with loans.

The loan officer will explain the mortgage products available at that particular bank and help you find the best one for your needs and financial situation. 

Similar to a mortgage broker, a loan officer’s main responsibility is to guide you through the application process, helping you gather documents. They will also help verify your credit, income and employment.

They can also provide you with detailed financial advice similar to that given by a mortgage broker. The main difference is that they are limited to the bank’s mortgage products. A loan officer can match you to the best loan product available within that particular bank. 

If you’re already the bank’s customer, you’ll most likely find a good rate or even get added perks/benefits. You can even get a discount on your loan’s fees or closing costs if you link your mortgage to the lender’s other products.

Pros of working with a bank 

Working with a mortgage broker isn’t for everyone. If you feel more at ease talking to loan officers, you may opt to work directly with a bank.

Here are some pros of working directly with a lender:   

• Direct connection. If you’re working with a loan officer at a bank, you are communicating with the lender’s employee. This means that any questions you have can be addressed without taking the time to go through an intermediary. Meanwhile, when you’re working with a mortgage broker, they may not always be able to influence what goes on at the financial institution since they don’t work under it. 
• Specialised knowledge. Going through a bank loan officer will give you access to the best deals offered by the bank or lender you choose to work with. Bank loan officers are also guaranteed to have expansive knowledge and experience of policies as well as the terms and conditions of their mortgage products. 
• Potential discounts and perks. As mentioned, it may be possible to get better deals and perks with the bank if you have a relationship with a lender. Banks can sometimes offer package deals on other financial products, like credit cards and savings accounts. However, don’t let this be the only reason you stay with your current bank – make sure to do your independent shopping for a home loan if you think there are other banks that can give you a better offer/deal.
• Fewer people to manage. While going through a mortgage broker will remove a lot of legwork from the loan process, you will have to do some research to find a mortgage broker in the first place. You’ll want a mortgage broker who works well with you and also with your buyer’s agent. If the relationship doesn’t go as expected, you can change brokers; however, this means that you’re back to back to square one. When you work with a bank, you are directly put in touch with a bank loan officer, and you are saved from doing time-consuming research to find the right person to work with. 

Cons of working with a bank 

There are also disadvantages to working directly with a bank for your investment property loan, such as: 

• Limited options. Banks only offer their own products, which can limit your mortgage options. Since banks are aligned to their own lending solutions, banks will only have access to their products and will adhere to their own unique lending policies. This means you are cut off from hundreds of lending products on the market, and you could be missing out on better rates or benefits from other lenders.
• Tougher requirements for approval. Banks generally have higher eligibility requirements, which can make it more difficult to get approved for a loan. 

Do borrowers have alternative options?

While going directly to big banks and mortgage brokers tend to be the most popular options that Aussies turn to when finding a mortgage, these aren’t the only options available.

Nowadays, there are also plenty of online comparison sites that can help you find a mortgage online. You can also look to credit unions, trust companies, insurance companies, loan firms and even private lenders. Just make sure to take the time to shop around and compare lenders to find the best rates and deals.

Disclaimer: The information provided in the article is general and should not be perceived as personal advice. It is highly recommended to consult with financial advice from a suitably qualified adviser.

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