Let’s say you’re looking for a home loan. Sure, you can Google home loans and you’ll be inundated with a choice of literally dozens of loans. You can walk into a branch of your bank and ask for a loan and they’ll be only too happy to help. You can ask a friend that recently got a home loan with whom they spoke and go with their lender. I could go on…but I’m sure you get the picture.
So why do 52% of borrowers take out a home loan using a mortgage broker?
Before I get to answer that question let me provide an analogy.
I’m assuming that you (the reader) hate cleaning your house almost as much as I do. The vacuuming, mopping, dusting, cleaning of windows, the wiping down of the kitchen benchtops and cupboards, the cleaning of the stove/oven, the bathrooms, the teenager’s bedroom (always a special treat) and finally my favourite: the kitty litter. That’s just the inside.
Why don’t most people outsource this odious function? I suspect it’s cost. What if you could get someone to do all of that cleaning for free? You’d jump at the chance. Right?
Now, I’m not comparing looking for a mortgage to the above but to many people, the task is daunting. So, what if I told you the following:
- You could get someone to come out to your house or place of work to discuss what you have in place and/or what you want.
- You provide some personal details
- Someone scours the market for you, compares products and prices to what you have discussed with them and narrows down the recommendations from a choice of dozens to two or three options.
- Then they recommend – based on your needs – which you should go with.
- Gathers all relevant information
- Submits the application to the lender
- Co-ordinates between the lender(s), real estate agents and solicitor.
- Ensures settlement is arranged between the above parties.
- Ensures repayment of existing debt (if one exists) is arranged to be repaid from settlement proceeds.
- And look after ad-hoc problems should they arise…
Now imagine if you could get someone to do all of this at no cost to you. Wait. You can. So why do it yourself?
Obviously 48% of borrowers still go direct. They don’t get a better deal as brokers are a low cost channel and generally have access to better rates. So again, why do they do it?
Two reasons really.
Firstly, people think that they have to pay. They don’t. Brokers are paid by lenders and lenders are happy to pay as they don’t pay for the salary, rent, equipment or any other expense of the broker. All the lender pays is an up-front and a trail. The borrower is not charged by the lender or the broker (or anyone else).
The second reason is more difficult to articulate but it has to do with the psychological barriers we place around our finances. People are used to walking into a bank and handing over their earning details and their net worth. That information is very sensitive.
Brokers are governed by the same compliance regulation as bankers. In fact, as part of our annual accreditation we need to ensure that our compliance training is up to date. Otherwise we lose our accreditation and cannot practice. Your information is confidential. We don’t talk about it with anyone. We don’t share your details with anyone (except the lender that you end up borrowing from).
Just like you don’t need a house cleaner, you don’t need a mortgage/finance broker. However both would make your life easier but only one won’t charge you.