A mortgage broker can help pave the way for success. When looking to obtain finance an individual can either deal with a bank or a mortgage broker. Both have the ability to assist in obtaining finance. However, the approach they take and the strategy they employ will be vastly different. A good broker first understands your goals and ambition and then seeks to assist you in achieving your goals. They create a plan and think numerous steps ahead to ensure you are able to execute your investment strategy.
What makes a good broker?
Like any industry, there can be individuals who excel within a profession. These individuals are highly sought after and can be worth their weight in gold. The same can be applied to mortgage broking and the individuals encompassed within this industry. A good broker is someone who understands your plan and works with you to implement it successfully. Sometimes, brokers or banks only focus on the current purchase and don’t consider the individual’s plans moving forward. This can be a disservice to the client and their ambition as lending is a key limitation to continuing to build a larger property portfolio. A good broker is integral to an investor’s property team.
How to identify a good broker?
There are numerous attributes that should be identified within a good broker. The following can be sought after if looking for a great broker:
- The broker should have experience within property investing. If the broker invests in property themselves, they can know the struggles and challenges of the investor and how to mitigate any hurdles.
- The broker should have numerous relationships with a range of lenders. In doing so they can offer their clients a range of options and aren’t limited to one or two banks.
- The broker should have a track record. Look to see who the broker has helped in the past and whether their reviews speak for themselves.
- The broker should take a holistic approach to lending. This means they are always looking one step ahead and understand your overarching plans. If the question of what you are trying to achieve never comes up, then it can be an indication the broker is transactional. This may not work in your best interest in the long run.
What does it cost?
If you are going to engage a mortgage broker, you want to know the cost do so. Strangely enough, brokers don’t charge their clients a fee. This is because brokers are reimbursed with upfront and/or trail commission by the lender for brokering the deal. This means the broker is usually paid a proportion upfront and over the course of the loan for their work.
How much do they earn? According to MortgageChoice brokers earn roughly 0.15% on a successful loan application. Though, this can be higher depending on numerous variables within an application. This rate is not added to your interest rate and is paid by the banks separately. Though, you will likely find that banks can offer a lower rate if you deal with them directly as opposed to working with a broker. This is likely because they don’t have to pay the broker for their services and can deal directly with the client.
Why not go directly to a bank?
As discussed, a bank or lender may offer you a better interest rate if you deal directly with them. So why should you consider a mortgage broker over a bank?
- A bank or lender is largely transactional and doesn’t offer a holistic approach. Therefore, the way they structure the loan may not take into account your goals and ambitions within investing.
- You are unlikely to deal with property investors themselves and therefore they don’t understand the challenges faced by investors.
- Each bank is incentivised to offer only its products/services. No lender will recommend their competitors, so you won’t be able to compare a range of products without contacting numerous lenders yourself.
- Mortgage broker’s interests are usually quite competitive with banks and may be able to negotiate a better deal with one particular lender with which an individual couldn’t.
The verdict
When looking at obtaining finance a mortgage broker can be extremely beneficial to an investor. Working closely with a good broker can make all the difference in successfully structuring a portfolio. Loans can be obtained directly from a bank but in many cases, this can limit the value the investor gets if they were to use a good broker. Moreover, by using an experienced broker who invests themselves they can take a holistic approach to lenders and help create a path towards assisting the investor to achieve their goals.
