There are a number of reasons why you might use a broker.  

 

You can scan Cannex or InfoChoice and pour over hundreds of lenders web sites looking for the ideal loan and you might get lucky. 

 

But how do you know that your application to a lender will succeed.  Lenders don't publish their lending policy nor do they give you access to their serviceability calculators.  The web based calculators are nothing like the real things.   So despite your research you may get knocked back because your overtime isn't counted or the postcode is unacceptable or the building has too many units or you don't have genuine savings or time in current job is insufficient or any number of reasons.  You are flying blind and when you apply for a loan with a lender you can bet that an inquiry will appear on your CRA (credit report).  Each CRA inquiry makes lenders nervous and creates yet another reason to reject an application. 

 

Any broker worth his/her salt will not only have a range of tools to assist in product comparison, they should have an intimate knowledge of alternative structures and short cuts that can save you thousands of dollars or add tens of thousands to your borrowing capacity. Your broker should know or cross check the lender's policy and should test your serviceability against that lenders calculator before an application is even begun.  Otherwise the broker is wasting their time as they only get paid if the application is successful.

 

Don't expect lenders to be reasonable.  Lenders work to policy guidelines and the days of the friendly branch manager approving your loan are long gone.    If you are outside the normal profile eg: you have a CRA default no matter how small, you only have little deposit, your partner is on maternity leave or a temporary visa.  Maybe the apartment is 49 square metres or the house is in a 1 in 100 year flood zone..........  you can save yourself a lot of grief by talking to a broker. 

 

If you are upfront with a broker in regards to your situation and your expectations, then your broker should have no hesitation in telling which lenders he/she recommends and why, what their rates and fees will be.  If your broker won't tell you that then you are dealing with the wrong broker OR you have been less than forthcoming.  The last words a broker wants to hear is "oh by the way I maybe should have mentioned...."

 

Mortgage brokers generally have a ‘panel’ of lenders to whom they refer business. Often the panel is a wide cross section of the industry, and that means brokers can expose their clients to a large part of the market with a single call. The broker receives commissions to prepare the application and introduce clients to lenders. For instance on a home loan of $250,000, lenders typically pay $1,500 up-front, plus a ‘trailing commission’ of $600 odd per year, declining with the balance of the home loan. This is why most brokers don’t charge, but it means there is a confused position. The broker acts as an agent (of sorts) and is paid by the lender while supposedly acting in the best interest of the borrower.  

 

There is a perception perpetuated by the media that brokers only recommend on the basis of the commission paid and are devoted to churning your loans from lender to lender in order to get more commission.  However there are some self leveling components in the industry.  Lenders don't pay commission directly to brokers they usually pay to aggregator groups who aggregate all of the commission claims from their member brokers and then distribute the payments.  These aggregators usually negotiate the commission payments and in the majority of cases the commission across the panel is quite consistent.  Secondly most lenders quite understandably claw back commission payments if the loan is refinanced withing a predefined period, typically 12 months.  Meanwhile for the client being churned there are exit fees, deferred establishment fees and new application fees and costs - it just isn't practical.

 

The reality is that most brokers build their loan book on the trail commission - this is bread and butter that pays the bills during the peaks and troughs.  

 

While some lenders have often reduced commission on individual products Westpac and the other majors have announced an across the board cut in commissions without any product or service enhancement. It is only understandable that brokers will recommend alternative comparable products from other lenders and as long as this is done in good faith then the market still wins.