Do you need a mortgage broker?

A mortgage broker sits between you and the banks. They look at your income, savings, and what you want to buy, then search their panel of lenders for loans that fit. Most brokers have access to 20 to 40 lenders, including the big four, smaller banks like ING and Macquarie, and non-bank lenders.

Once you pick a loan, the broker handles the application, chases the paperwork, and talks to the lender on your behalf. If there is a problem, they sort it out. If the first lender says no, they try another without you starting from scratch.

A bank employee, by comparison, can only offer you that bank's products. They have no legal obligation to tell you if a better deal exists elsewhere.

Most brokers charge no upfront fee. The lender pays them two commissions, which are built into the cost of your loan.

This money comes from the lender, not from you. In most cases the interest rate is the same whether you use a broker or go direct, though some lenders offer lower "direct only" rates. A good broker can often negotiate rates below what you would get walking into a branch.

Some brokers may also receive volume bonuses or other benefits from lenders or aggregators beyond standard commissions. You can ask your broker about these.

Lenders do not just look at your income. They run a serviceability assessment that stress-tests your repayments at a rate roughly 3 percentage points above the actual rate. So if the loan rate is 6%, they check whether you can afford repayments at around 9%.

They also look at your existing debts (credit cards, car loans, HELP/HECS, afterpay), your living expenses, and any dependents. A credit card with a $10,000 limit reduces your borrowing power even if the balance is zero, because the lender assumes you could draw on it at any time.

This is the most common surprise for first home buyers. You may earn enough on paper, but a combination of HELP debt, a car loan, and a couple of credit cards can reduce your borrowing capacity by $50,000 or more. A broker can model this for you before you apply.

The obvious tension: a bigger loan means a bigger commission. And some lenders pay higher commissions than others. That is a real conflict of interest.

In January 2021, the Best Interests Duty came into effect under the National Consumer Credit Protection Act 2009, following a recommendation from the Banking Royal Commission. It has two parts: brokers must act in your best interests when providing credit assistance, and where there is a conflict between your interests and theirs, they must prioritise yours.

This obligation applies to brokers but not to bank staff. Bank staff are still subject to responsible lending laws, but they have no duty to find you the best deal across the market. A broker does.

A small number of brokers charge you a fee directly, typically $1,000 to $3,000 for a standard home loan. In return, they may rebate some or all of the lender commission back to you, which can lower your interest rate slightly. Not all paid brokers rebate the full commission, so ask for a written breakdown.

Paid brokers hold the same licensing and are subject to the same Best Interests Duty as commission-based brokers.

Paid brokers make sense in a few situations:

• Your lending situation is complex (self-employed, trust structure, mixed commercial and residential)
• You want the assurance that the recommendation has zero connection to commission
• Your loan is large enough that a small rate reduction saves more than the fee

For most first home buyers with a straightforward PAYG income and a standard home loan, a commission-based broker is fine.

1. 01

   How many lenders are on your panel?

   More lenders means more options. 20 to 40 is typical.

2. 02

   What aggregator are you with?

   The aggregator determines which lenders your broker can access. Two brokers at different aggregators may have different panels.

3. 03

   Which lender do you place the most loans with?

   If one lender dominates, ask why.

4. 04

   How are you paid on this loan? Can I see it in writing?

   They are required to disclose this in the Credit Proposal Disclosure document. Ask for specific numbers.

5. 05

   Do any lenders pay you more than others?

   A direct question. A good broker will answer honestly.

6. 06

   What are the stamp duty concessions and grants for first home buyers in my state?

   These can save you $10,000 to $30,000 or more. Thresholds differ by state and change regularly.

7. 07

   What happens if my first application is declined?

   A good broker has a plan B.

8. 08

   Will you help me get pre-approval, and how long does it take?

   Pre-approval shows sellers you are serious. Most take 1 to 5 business days and expire in 90 days.

9. 09

   What are my LMI options if my deposit is under 20%?

   LMI can cost $8,000 to $40,000 or more. Some lenders discount it, some let you capitalise it.

10. 10

    Do you do annual rate reviews after settlement?

    The trail commission means they have a reason to keep you happy. Hold them to it.

Yes. Plenty of people get a home loan by walking into a bank or applying online. If you are comfortable comparing rates, reading product disclosure statements, and managing the application, you can absolutely do it yourself.

Going direct works well when:

• You already bank with a lender that has a competitive rate
• Your situation is straightforward (PAYG income, single property, no HELP debt)
• You enjoy comparing products and reading the fine print

The main trade-off is time. A broker compares 20 to 40 lenders in one conversation. Doing it yourself means contacting each lender individually.

Whether you use a broker or go direct, these are the features that matter most for a first home buyer.

• They only ever recommend one lender.
• They will not tell you how much they earn on the loan.
• They encourage you to borrow more than you are comfortable with.
• They rush you to sign without reading the documents.
• They suggest overstating your income or understating your expenses. This is fraud.
• They do not give you a Credit Guide at or before the first meeting. This is a legal requirement.
• They do not give you a Credit Proposal Disclosure document before you sign. Read it before you sign anything.
• They recommend their in-house conveyancer or financial planner without disclosing referral fees.

Ask friends or family who have bought recently. That is the most reliable way. The MFAA and FBAA are industry associations that maintain directories of member brokers. Read Google reviews. Look for someone who specialises in first home buyers.

Every broker must be an authorised credit representative listed on the ASIC register, or hold their own Australian Credit Licence. You can verify this on the ASIC Connect professional registers at connectonline.asic.gov.au. They must also be a member of the Australian Financial Complaints Authority (AFCA). If they are not, walk away.

Cooling-off period: After signing a credit contract, you have a right to rescind within a specified period under the National Credit Code. The lender can charge a small fee for this, but it gives you a window to change your mind. Ask your broker or lender for the exact timeframe.

If something goes wrong: Complain to your broker first through their internal complaints process. If that does not resolve it, escalate to the Australian Financial Complaints Authority (AFCA) at afca.org.au. AFCA is free for consumers and can order compensation if the broker has done the wrong thing.