Mortgage Broker vs Bank: Which Option Saves You More Money?

Important Note: This article provides general information only and does not constitute financial advice. Lending criteria, rates and requirements can vary between lenders and may change over time. Consider your circumstances and seek professional advice before making financial decisions.

Buying a home or refinancing your mortgage comes with plenty of big decisions, and one of the first is figuring out who you want to arrange your loan through. Do you go straight to a bank and choose from its home loan options, or work with a mortgage broker who can compare loans from different lenders?

On the surface, it sounds pretty straightforward. But when differences in interest rates, fees and loan features can add up to hundreds or even thousands of dollars over the life of your mortgage, it’s worth looking beyond the obvious. So, when it comes to a mortgage broker vs a bank, which option could actually save you more money?

There’s no one-size-fits-all answer. Your financial situation, loan needs and the options available to you all play a part. Let’s look at how each approach works, where you could potentially save money and what to consider before choosing how to arrange your home loan.

Mortgage Brokers vs Banks: How Do They Work?

The biggest difference between the two is the range of lenders and products you can access.

What Does a Mortgage Broker Do?

A mortgage broker acts as an intermediary between borrowers and lenders. According to Moneysmart's mortgage broker guidance, a broker can help you understand your borrowing needs, work out what you may be able to afford, identify suitable loan options, explain loan costs and features, and assist with the application through to settlement.

Rather than approaching individual lenders yourself, a mortgage broker in Richmond can compare available home loan products from a range of banks and non-bank lenders.

This may include comparing:

• interest rates

• comparison rates

• application fees

• ongoing fees

• loan features

• repayment options

• offset accounts

• redraw facilities

• fixed and variable rates

Mortgage brokers do not necessarily have access to every lender in Australia. Moneysmart recommends asking a broker which lenders they work with and which lenders they cannot access.

What Happens When You Apply Directly With a Bank?

Going directly to a bank means discussing your home loan requirements with that particular lender. This can be convenient if you already have a strong relationship with your bank and its products are competitive for your circumstances.

The bank can explain the home loans it offers, assess your application and provide an interest rate based on your financial position.

One limitation is the narrower choice of products. When you approach one bank directly, you are generally assessing that bank's available products rather than comparing a broader selection of lenders at the same time. You could approach several banks individually, but that requires more research, conversations and comparisons.

A home loan comparison can therefore become important before deciding whether your existing bank is genuinely offering competitive value.

Where Could You Save Money?

Whether you use a broker or approach a bank directly, the potential savings usually come from choosing a loan that suits your circumstances and offers competitive overall costs.

Interest Rates and Comparison Rates

The interest rate is one of the most important factors affecting the long-term cost of a home loan. Even an interest rate that is 0.5% lower could save a borrower thousands of dollars over time. That is why accepting the first home loan offered by your existing bank may not always be the most cost-effective approach.

When comparing loans, look beyond the headline interest rate. You should also consider the comparison rate, fees, loan term and features. A slightly lower interest rate may look attractive, but high ongoing fees or features you do not need could reduce the overall benefit.

A home loan broker can help compare these factors across several available options instead of focusing on the advertised rate alone.

Fees and Loan Costs

The interest rate is only one part of the overall cost of a mortgage. Depending on the lender and loan product, you may also encounter:

• application or establishment fees

• property valuation fees

• settlement fees

• annual package fees

• ongoing account fees

• other lender-specific charges

Not every lender charges the same fees, and some may waive particular costs depending on the product.

This is why a loan with the lowest advertised interest rate does not necessarily have the lowest overall cost. Comparing the interest rate, comparison rate and applicable fees can give you a more complete picture.

Loan Features and Potential Interest Savings

Loan features can also affect how much interest you pay. For example, an offset account allows eligible savings to reduce the portion of your mortgage balance on which interest is calculated. If a borrower has a $500,000 mortgage and keeps $20,000 in an offset account, interest is calculated on $480,000 rather than the full $500,000.

However, features can come with additional fees or higher interest rates. If you are unlikely to maintain significant savings in an offset account, paying extra for the feature may not provide enough benefit.

A personalised finance strategy can help you consider whether particular loan features are likely to suit the way you manage your money.

How Much Does a Mortgage Broker Cost?

Many borrowers assume using a broker must involve a large additional fee. In many standard residential lending situations, this is not necessarily the case.

Lenders generally pay mortgage brokers commissions for distributing their loan products, meaning borrowers commonly do not pay the broker directly.

However, arrangements can differ. Always ask your broker:

• whether you will pay any broker fee

• how the broker is paid

• whether commission differs between lenders

• whether any other costs apply

Transparency matters when comparing your options.

What Else Should You Consider?

Cost is important, but it is not the only factor that should influence your decision.

Choice of Lenders

A bank can only offer the products it provides, while a mortgage broker may be able to compare options from multiple lenders.

The range of lenders available through a broker will depend on the broker's lender panel, so it is worth asking which lenders they work with before proceeding.

Having more options does not automatically mean you will receive a better loan. The important thing is whether the available options are suitable for your circumstances and competitive on overall cost.

Personalised Guidance

Arranging a mortgage involves more than choosing an interest rate. You may also need to consider your deposit, income, existing debts, borrowing capacity, loan term and how you expect your financial circumstances to change.

A broker can help you compare these factors and explain how different loan structures may affect your repayments and overall costs. This can be particularly useful if your circumstances are more complex or you are unsure which loan features you are likely to use.

Convenience and Time

Comparing home loans yourself can involve contacting multiple lenders, requesting information, comparing rates and fees, reviewing loan features and managing applications.

A broker can handle much of this process on your behalf and help you navigate the application through to settlement. That convenience can be valuable, particularly if you have limited time or are not confident comparing different home loan structures yourself.

Which Option Makes More Sense for First-Home Buyers?

For first-home buyers, dealing directly with a bank may feel straightforward, particularly if you have banked with the same institution for years. However, familiarity does not necessarily mean that the bank has the most suitable home loan for your circumstances.

First-home buyers may need to compare:

• deposit requirements

• borrowing capacity

• Lenders Mortgage Insurance

• government assistance

• interest rates

• loan features

• fees and ongoing costs

A broker can help explain these differences and compare available options. Moneysmart recommends comparing personalised home loan options from at least two different lenders before deciding.

Getting your first-home buyer home loan reviewed before making an offer can therefore help you understand both what you might be able to borrow and how different lending options compare.

What About Refinancing?

The mortgage broker vs bank question is equally relevant if you already own a property.

Remaining loyal to the same lender for many years without reviewing your rate can potentially mean missing more competitive options. Moneysmart's refinancing guidance recommends asking your existing lender for a better deal and comparing that offer against alternatives.

However, refinancing is not automatically worthwhile.

Possible costs can include:

• discharge fees

• application fees

• switching fees

• fixed-rate break costs

• valuation fees

• Lenders Mortgage Insurance in some circumstances

You need to make sure the expected savings outweigh the costs of switching.

A mortgage refinance review can help assess both the potential interest savings and the expenses involved before changing lenders.

Compare Your Home Loan Options Before You Decide

Your mortgage is likely to be one of the largest financial commitments you will make. Choosing a lender based solely on convenience or familiarity could mean overlooking a more competitive option.

Whether you are buying your first home, moving property or considering refinancing your home loan, compare the complete cost of the mortgage rather than looking only at the advertised interest rate.

Richmond Residential can help you compare residential property loan options from bank and non-bank lenders and consider how different loan structures fit your circumstances and longer-term goals.

So, Which Option Could Save You More Money?

There is no universal winner.

Going directly to a bank can make sense if the lender offers a highly competitive loan that fits your circumstances. However, a mortgage broker may provide an advantage when you want to compare multiple lenders, investigate different loan structures or avoid doing all of the research yourself.

The biggest potential saving does not come simply from choosing a broker or bank. It comes from comparing your options before committing.

Interest rates, fees, loan features and lending policies can vary considerably between products and lenders. A small difference today could become a substantial difference over a 20- or 30-year mortgage.

Want to Know Whether Your Bank Is Giving You a Competitive Deal?

Before accepting your bank's offer or continuing with your existing mortgage, consider getting a second opinion.

Our mortgage brokers at Richmond Residential can review your requirements, compare available lending options and help you understand the interest rates, fees and features that may affect the true cost of your home loan.

Book a home loan consultation with Richmond Residential to compare your options and find out whether there may be a more suitable way to structure your mortgage.