As more than 50% of home loans are now placed through brokers, it’s interesting to reflect on the pros and cons of each channel. In previous articles I had already mentioned some of these but they bear repeating here.
Let me cut to the conclusion. Every financial transaction is based on trust and personal rapport between the parties. That outcome is different for everyone. Let’s deal with banks first.
The most quoted reason for customers wanting to deal with a bank is that they deal with a banker that is assigned to them. Which is fantastic. Banks will love hearing that. It’s the personal service angle that gets you in. They don’t trust brokers – usually because they’ve never had any dealings with one.
The problem with this reason is that these “relationship” bankers are changed very frequently. Either as a result of a re-structure, promotion or other changes to the banks’ business model. These occur almost annually. So the reason that you chose your bank disappears very quickly after you get your mortgage. Why is this important? You’ll have to wait for that in the broker section.
Another reason is that they’ve banked with a particular bank all of their lives as have their parents. There is an emotional attachment to the institution that was formed from very early on in life. This myth is usually shattered when they go in to a branch and are greeted by a teller who asks them to make an appointment with a loan officer whose calendar is so full that there is no time to fit them in.
All semblance of personalised service goes out the window once you turn up to the appointment (weeks later) to find the loans officer pulls out a form and begins to record answers to questions with mechanical methodology. This is not such a bad thing as it helps get to whether or not you can borrow quicker.
But if you were expecting a metaphorical warm financial embrace you will be sorely disappointed. Assuming you are eligible to borrow, you are then given a loan application form to complete. In years gone by the lending officer would have helped you to complete this form but they are so overworked these days they simply don’t have the time.
Then there is the credit process. It’s here that the banks differ. All of them will use very similar metrics at arriving at a credit decision but some banks give approval on the spot and others can take weeks.
Brokers
Let’s start with the cons. A broker has no authority to approve a loan. However, neither does the banker that you speak to in a bank. That’s it. There are no other cons.
So what are the Pros.
Brokers will not charge for the service that they provide as they get paid by the lender.
Usually, the price you get from a broker is cheaper than that you will get from a bank. As the broker channels are promoted by banks as a low cost way of originating loans.
The broker can quickly compare every single lender’s terms and pricing very quickly and ensure that you get what you want and with the right lender.
A broker will (by law) explain the pitfalls of entering into any financial agreement with a bank/lender.
They will also assist in completing the application forms from the information that you provided. So it stops the doubling up of information.
Anyone that has gone loan hunting knows only to well what a nuisance it is to have to provide your financial records to each lender that you see/make an enquiry to. With a broker, you need only do that once. Once the loan has settled, you’re usually forgotten by a bank.
A good broker will ensure that your loan is what you wanted and help to communicate with the lender if things have not been done correctly (as banks often make mistakes). Further, when rates move, a good broker will communicate what else is available in the market to ensure that you are always at the cutting edge of your biggest financial investment.
When you deal with the right broker, you’re usually dealing with the business owner. So your relationship manager is unlikely to be re-structured or promoted out. This means continuity of service over many years. So the next time you feel the need to walk into a bank branch (either physically or online), contact a broker and compare the two experiences for yourself.