Mortgage broker vs Direct Lender: What’s the difference?

When the time comes for you and your family to buy a house, it can be an overwhelming and stressful time. There are so many options out there. One of the biggest questions is how to finance your home loan – through a mortgage broker, or directly through the lender? There are big differences that you should carefully consider in this question, and we are here to help talk you through the differences between these two options to help you decide what is right for you.

Direct lenders

A direct lender is a financial institution that offers mortgages, such as a bank or a savings and loan association. If you chose to go to a direct lender, you will work alongside a loan officer. This person is an employee of the lender and they will be able to assist you to find the right home loan from their listed products.The direct lender earns a profit by charging you a higher interest rate than the current cash rate.Going directly to lenders might be faster, since you’ll be dealing directly with a bank as any questions come up, rather than through an intermediary. On the flip side though, if you are shopping around, it may time a longer time for you to go through each lender directly, rather than have a mortgage broker do it for you.

Pros:

  • Easy to arrange if you have a good history with the bank.
  • You can be entitled to additional benefits if you are a member.

Cons:

  • Limited to the products the lender offers.
  • Can have reduced flexibility.
  • Can have stringent lending standards.

Mortgage Broker

A mortgage broker is a home loan specialist that has a number of lenders on their panel. Their job is to help you compare their lenders based on your individual circumstances. When you contact a broker, they will ask you a number of questions about your financial situation and home loan needs, and then they will help you to find suitable home loan products from their lender’s panel. Mortgage brokers do not typically charge you an upfront fee for their service. Instead, they earn a commission from the lender who finances your home loan.

Pros:

  • Greater number of lenders and products.
  • You do not have to conduct research.
  • Can save you time and money.
  • Can suggest ways for you to get home loan approval.

Cons:

  • May be biased when it comes to recommending products due to higher commissions being paid on certain products.
  • May have a limited number of lenders on their panel.

If you’re looking for a home loan and are still unsure of your best option moving forward, contacting a finance broker might be the right option for you. Their expert knowledge and advice can be a fantastic starting point to ensuring that you and your family receive the safest home loan for your individual circumstances.

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