What's the difference?
Is there a difference between an online lender and an online mortgage broker? Yes there is, and in this blog, I hope to break this down for you.
If you’re shopping online for your home loan, you are usually looking for a lender that can offer the cheapest rate with the most features included in their products. Sometimes it’s hard to tell whether an online lender is actually a lender selling their own products or a mortgage broker selling you another bank or financial institution’s products.
So what’s the difference? It’s probably worth breaking down what a “lender” is versus a “mortgage broker” and how they can be very different in terms of price and service.
A lender is the company that you will actually be borrowing the funds from. They raise money themselves and lend to the customer direct or via intermediary companies such as mortgage managers or brokers. If you go to a lender direct, it is their product you are purchasing.
A mortgage broker is an intermediary company. They stand between you and the lender. They will take your application and submit it to a lender. By placing your loan with a lender, they will usually receive a commission for introducing that business to the lender. Because of this, you will not likely receive the cheapest rate, as that rate will take into account the commission the lender had to pay to the mortgage broker to get your business. You will be indirectly paying broker commission.
Whilst a mortgage broker might claim to be an independent source who is trying to find the best mortgage deal for you and your scenario, they might have hidden agendas and favouritism for certain banks and institutions. The reason behind this is because brokers are paid commission from financial intuitions for each client they refer, and to be honest, some institutions will pay a higher commission to them than others. This is why people have been frustrated with mortgage brokers in recent times and why they choose to go online to do their own research and loan applications.
When you start shopping online, be aware of online mortgage brokers acting as if they are a lender. Are they listing their own products or products belonging to a lender? What we’ve seen recently is online mortgage brokers listing cheap 3rd party products to get you interested, but this might not necessarily be the product they end up selling you. It can be a waste of your time if they do this, and you have to question whether you are getting the best deal in the end.
loans.com.au is the online brand of FirstMac Limited who is a lender. FirstMac raises its own money and has traditionally been a wholesale lender to other finance companies and mortgage brokers. loans.com.au was launched to give consumers direct online access to the lender, and this is why our products are fully featured at really low rates. There isn’t broker commission being paid, which is another reason why our rates are market leading.
Besides having the cheapest rate, long term customer service is also a very good reason for choosing an online lender over an online mortgage broker.
Traditionally if you dealt with a mortgage broker, after they placed your loan with another company and the loan settles, any customer service issues are normally referred to the lender. So if you have any questions about the loan, you are not likely to deal with the mortgage broker anymore, but rather your new lender. This has been a frustrating point for consumers in recent years. The upfront service is there with a broker, but in the long run you are dealing with somebody completely different. If you had initially dealt with the lender rather the mortgage broker, this might have changed your decision process when taking out the loan. It is important to find out who you talk to for service issues after the loan settles, because once commissions are paid, that mortgage broker may no longer be your point of contact. When you apply directly with the lender you will be dealing with them for the life of the loan. The business relationship is based on a long term relationship, rather than just an upfront sale with no customer service going forward. This can be important if you are looking for a high level of customer care to help you with your loan and investments in the future.
To determine whether a company is a lender or broker, the best option is to look on their website and find out who the company is backed by. If you see logo or references to banks or other financial institutions, you can be rest assured that you are looking at an online mortgage broker, and you have to weigh up if you prefer an intermediary who is being paid commission at your expense.
It is important to always do your own independent research and seek independent advice when shopping online, so that you can ensure that you make the right decisions for you and your scenario.
If you want to know any more about this blog, we’d be happy to answer any of your questions - please do not hesitate to contact us via our website or give us a call on 13 10 90.
By Marie Mortimer