Mortgage broker vs bank: which should you choose?

A bank can offer you its own home loans. A mortgage broker can compare loans from a range of lenders, work out which ones suit your situation and help you through the application. You get more choice and someone to do the legwork, instead of having to approach each bank yourself.

That's why I'd start with a broker, especially if you're buying your first home, self-employed or unsure how a bank will assess your deposit. At Hunter Galloway, we check the lending options available to us, compare the costs, request pricing and prepare your application. We then follow up with the lender as it works towards a decision and settlement.

The advantage is having someone connect the pieces for you. A low advertised rate is only useful if you qualify for the loan and its features suit you. We look at those questions together. We cannot access every lender or guarantee approval, but we can explain the options we have compared and why a particular loan fits.

When you go directly to a bank, you are choosing from that bank's range. A broker can compare how different lenders treat your income, deposit and property as well as the interest rate. That wider comparison is particularly useful when your circumstances do not fit neatly into one bank's requirements.

Mortgage brokers must act in your best interests when providing credit assistance covered by the National Credit Act. If their interests conflict with yours, yours must come first. That includes how they deal with commission and lender relationships.

A bank selling its own home loan is not subject to this mortgage broker best interests duty. Banks still have responsible lending obligations; this does not mean they can offer you an unsuitable loan. Ask either provider to explain the recommendation and the costs in writing.

Separate the broker's fee from the loan's fees. Lenders generally pay brokers an upfront commission after settlement and may pay an ongoing trail commission. Some brokers also charge you directly. Ask for the amount, when it becomes payable and any conditions before agreeing to proceed.

At Hunter Galloway, in most circumstances we do not charge a customer broker fee for residential home and investment loans. We disclose the commission and any fee that may apply before you proceed. Lender, legal, valuation and government costs may still apply. Our mortgage broker fees guide explains the separate charges.

You do not automatically receive a discount equal to the broker's commission by applying directly. Ask for the actual offer through each available channel. Compare the rate and fees you would pay, including any package or offset charge, rather than guessing how the lender prices its distribution costs.

Using a broker does not automatically remove Lenders Mortgage Insurance (LMI), and going directly to a bank does not automatically trigger it. LMI protects the lender and may apply when you borrow more than 80% of the property's value. The lender, loan and any eligible exemption determine the outcome.

Eligible buyers using the Australian Government 5% Deposit Scheme can buy with a deposit as low as 5% without LMI through a participating lender. Other borrowers may qualify for a professional waiver or another lender-specific exception. Check our first home buyer guide and LMI waiver guide before treating an LMI estimate as unavoidable.

A broker can compare rates across the lenders they work with and use competing offers when negotiating on your behalf. At Hunter Galloway, we can take another lender's offer back to a bank and ask it to improve its pricing. That gives us a concrete comparison to negotiate from, instead of simply asking for a discount. We compare the rate, fees and features together so you can see which offer suits you.

For example, take 2 offers for a $600,000 loan over 30 years, with monthly principal-and-interest repayments. Offer A charges 5.75% p.a. with no upfront or annual loan fee. Offer B charges 5.50% p.a., a $600 upfront fee and a $395 annual fee. These are example figures, not current lender offers or a client result. Either offer could come through a broker or a bank.

Offer B costs about $4,917 less in interest and the listed fees over 5 years, and leaves a lower loan balance.

Its repayment is about $95 lower a month, or about $62 after allowing for the annual fee. You still pay $600 upfront. Compare both the ongoing payments and the balance you will owe, rather than judging the offers on repayment alone.

The calculation holds both rates unchanged for 5 years, uses the annual rate divided by 12 and assumes repayments at month-end. Fees are paid separately. There is no offset balance, redraw, extra repayment, LMI or other cost. Lenders commonly calculate interest daily, so actual repayments and interest can differ. Rounded totals may differ by $1.

An offset account can change the comparison if you keep savings in it. Include only the balance you realistically expect to hold there. A comparison rate helps you compare interest and certain fees, but it uses stated assumptions and does not capture every feature or cost of your particular loan.

This is where a broker's knowledge of different lenders can be particularly useful. If you run a business, earn overtime or have recently changed jobs, we can check which lenders may accept that income and what they need to see. That helps us prepare an application for a lender whose requirements fit, while checking that the repayments are affordable.

Our self-employed home loan guide explains why the documents and income calculation matter. For a small deposit, establish which lenders and schemes you are eligible for before spending time comparing advertised rates.

Ask for the reason first. A lender's rule about your employment or property may differ from another lender's. But if repayments are unaffordable, moving the same application elsewhere may not solve the problem. A broker should be able to explain whether another lender is realistic or whether you need to change something first. Our declined home loan guide covers that next step.

We help you compare the loan features, gather the right documents and deal with the lender's questions. You have someone to explain what is outstanding and follow up as the application progresses. The lender still controls its assessment and timing, but you do not have to manage the process on your own.

A comparison should reach beyond the bank you already use. Our reviews of CommBank, Westpac and People First Bank show the product and eligibility questions to investigate. They are research starting points, rather than a recommendation that any of those lenders will suit you.

If you have compared the market, your income and deposit fit the bank's requirements and its offer suits you, applying directly can be a reasonable choice. You may prefer its branch service or already have a relationship with its lending team.

Check any direct offer your broker cannot arrange, and ask them to explain which lenders or products they cannot access.

Our negotiating support also continues after settlement. We can compare your current rate with other lenders' offers and use those offers to ask your existing lender for better pricing. If it improves your rate enough, you may be able to save without switching loans. If refinancing looks better, we compare the savings with discharge costs and any fixed-rate break cost. Our refinancing guide explains that calculation.

The same applies to staff or relationship discounts: get the terms in writing and compare the whole offer. A familiar bank is a convenient starting point, but convenience alone does not show whether the loan is good value.

If your bank has already made an offer, bring it to us. We can compare it with suitable options from the lenders we work with and explain the differences in cost, features and eligibility. Keep the following checks together so you are comparing the same loan amount and term.

Before choosing a broker, check their credit licence or representative details on ASIC's Professional Registers. Ask which lenders they considered, why they ruled others out, how they get paid and what support continues after settlement. Be cautious if they cannot explain why the recommended loan suits your circumstances.

Comparing quotes is different from making several formal applications. A lender's request for your credit report in connection with an application is recorded as a credit enquiry. Ask what checks will occur before you apply, read the lender's credit reporting notice and tell your broker if you have already applied directly. Avoid having two people lodge the same application without knowing what the other is doing.

If you are still looking for a property, our pre-approval guide explains what an approval in principle can and cannot tell you. You will still need to meet the lender's final conditions.