Why Use A Mortgage Broker To Negotiate Your Home Loan?

Oct 13th, 2011 Ashley Stevenson

What exactly is a mortgage broker and why would you use one when applying for your home loan instead of going directly to the bank?

A mortgage broker is someone who acts independently of the banks and other financial institutions. They are the conduit between someone seeking a home loan and the potential lenders.
Traditionally banks and other lending institutions sold and processed their own products. Mortgage brokers first came to the fore in the United States about 30 years ago and in New Zealand in the early 1990s. Indeed, such has been the expansion of the broker market that mortgage brokers are now the largest sellers of home loan products for lenders in New Zealand, accounting for about one third of all home loans processed.

In The United States brokers by and large charge a fee for their services whereas in New Zealand they are almost exclusively paid by the banks. You should be careful to check this with your mortgage broker at the outset however. As such, the mortgage brokers service to you is a free service.

If you are thinking that you must surely be able to get a better deal by going direct to the bank then you should think again. In most if not all cases you will be able to negotiate an equal or better deal through an experienced mortgage broker. By using broker networks extensively, the major banks in New Zealand are undoubtedly able to rationalise the numbers of lending officers they employ.

Mortgage brokers certainly serve a valuable purpose in New Zealand and are here to stay. If you go direct to a bank then you will be offered one range of lending products available through that lender whereas, if you negotiate your home loan through a mortgage broker you will have access to most of the home lending options available.

It will always be the case that from time to time some banks will choose not to deal with broker networks. Over the past twenty years there have been times when several of the major banks in New Zealand have not dealt with mortgage brokers for periods of time and no doubt we will continue to see this in the future. However, the vast majority of lenders and financial institutions in New Zealand do deal with mortgage brokers.

An experienced mortgage broker will be thoroughly familiar with all of the banks lending criteria including such factors as debt servicing criteria, loan to valuation ratios and the like. Because your mortgage broker will be fully aware of each of the banks criteria you will usually find that they will only submit a deal to a particular bank if they are pretty much certain the loan will be approved.

The upshot will often be also that you may have two loan approvals and be able to compare loan offers and factors such as margins on interest rates, establishment fees and contributions to legal fees.

In packaging your loan a skilled mortgage broker will also work with you to review your financial situation generally and if the opportunity exists, help you to restructure expensive debt such as credit cards, overdraft debt, hire purchases, car loans and the like, You can literally save hundreds of dollars a month by adding sufficient funds to your home loans to clear such debt. It is not necessarily in the banks best interest to recommend that you do this whereas your mortgage broker will look at the issue through impartial eyes.

Similarly, if you are buying a business or an investment property or transferring a former family home to a rental, if the opportunity arises, an experienced mortgage broker will help you structure your borrowing so that as much as possible of your borrowing is for the purpose of the investment and therefore, deductible for tax purposes. A skilled broker will also know the best sources of finance for start-up businesses or franchise funding where there is no business history to display to the lender.

In past years there have been a number of financial advisors who have arranged the odd mortgage to supplement their income streams. Generally such people did not offer a great number of alternatives for the home buyer. You should check that your mortgage broker is a member of the New Zealand Mortgage Brokers Association. The NZMBA is a voluntary organisation founded in 1997.

In order to be a member a mortgage broker must have completed and passed the associations training and accreditation program and must be able to show that they represent a minimum of six recognised lending institutions, at least three of which must themselves be affiliate members of the NZMBA.

If all else fails with the major lenders, perhaps because you have a poor credit rating but you simply must find finance, your mortgage broker will often also have recourse to second and even third tier lenders. You need to be aware that with such lenders the cost of credit is usually significantly higher with high front end establishment fees and loan approval fees charged, not to mention considerably higher interest rates.

If you are looking for impartial advice, the best choices in home loan products, interest rates, advice on the mix of floating and fixed rate loans, interest rates, loan terms, fixed rate terms and reconciliation of expensive second tier debt, there is no doubt that you will secure the best available solutions by engaging the services of an experienced mortgage broker.

About the Author:

Ashley Stevenson is a freelance writer. Mortgages Tailored To Your Needs

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