When it comes to shopping for a housing loan, many homebuyers would hire a mortgage broker, or mortgage specialist to help them find the best loan packages in the most efficient and effortless way.
Hiring an experienced and competent broker can help you find the right mortgage that you’re most eligible with and best suits your affordability, they will even have your loan application sorted out – fewer worries about your loan getting rejected!
What’s A Mortgage Broker?
A mortgage broker is an intermediary that helps people get mortgages, by connecting them to lenders who best fit the borrower’s financial needs.
They’re also responsible in processing the relevant paperwork by collecting them from the borrower, and passing it to the lender for underwriting and approval.
After everything is done, the broker then receives an origination fee from the lender when the loan transaction is successful.
An origination fee, or discount fee/point, is a payment for originating a loan. It’s usually between 1% to 2% of the loan amount. For example, a broker gets RM5,000 if a RM500,000 loan is approved.
[PropertyTip]Mortgage brokers don’t fund mortgages themselves. They’re not mortgage bankers, who both closes and fund mortgages.[/PropertyTip]
What Does A Mortgage Broker Do?
A mortgage broker will gather various loan options from different lenders for your consideration, while at the same time pre-qualifying you for a mortgage.
[PropertyTip]Getting pre-qualified for a mortgage loan involves providing a lender with an overview of your financial situation, such as income, debt, and assets. The lender then reviews the information and returns with an estimate of the amount you can borrow.
It’s not the same as getting pre-approved, where you’ll receive a conditional commitment stating the exact amount of loan allowed, taking you one step closer in getting an actual loan.[/PropertyTip]
The broker gathers important documentation such as your income, asset, and employment record, and credit reports. These will be used to assess your ability to repay your debt.
The mortgage broker will also help you figure out the appropriate loan amount, loan-to-value ratio, and your ideal loan type before submitting the loan application to a lender for approval.
[PropertyTip]Loan-To-Value (LTV) Ratio is a lending risk assessment ratio examined by financial institutions and other lenders before approving a mortgage.
A higher LTV ratio means the lesser you would get for your mortgage loan.[/PropertyTip]
What’s The Difference Between A Mortgage Broker And A Bank’s Mortgage Officer?
The main difference between a mortgage broker and a bank’s mortgage officer is that the bank officer will only represent the bank’s products, while a mortgage broker works with multiple lenders and has access to a wider range of products.
This also translates to other differences in terms of your available options and the service you’ll get.
1. Available Loan Options
Since mortgage brokers work with many different lenders which includes major banks and private funds, they might have access to better housing loan interest rates.
However, the number of lenders a mortgage broker has access to is limited by whether or not they have approval to work with each lender.
In addition, some lenders work exclusively with mortgage brokers for certain loan products, which would give you access to loans otherwise unavailable to you.
2. Quality Of Service
Brokers work with a few borrowers at a time, and since they don’t get paid until a loan transaction is made, they’ll have a greater incentive to work on a more personal level with each borrower.
Bank mortgage officers, on the other hand, work with many borrowers and may keep you on hold for quite some time.
Also, you should take note that if a loan that originates through your broker is declined, your broker can apply to another lender; if your loan originates through a bank’s mortgage officer, no further action will be taken if it’s denied.
On top of that, brokers might be able to get lenders to waive fees associated with the loan application – something that a mortgage officer can’t do.
What Are The Pros And Cons Of Hiring A Mortgage Broker?
Of course, approaching a mortgage broker seems to be the most convenient choice. (who doesn’t like taking the easy way out?)
However, hiring a mortgage broker has its pros and cons.
The Pros Of Hiring A Mortgage Broker:
- One-stop shop: With a mortgage broker, you’ll only need to fill out one application, and you won’t need to spend time looking for multiple lenders yourself.
- Competitive interest rates: Brokers are often able to find better housing interest rates for you than those offered by major banks.
- Well-connected: Mortgage brokers are specialised in their field, and very knowledgeable about what different lenders have to offer. A good broker can steer you away from loans that are unfavourable to you. Although a bank has a wider financial view and information available, they may not be as specialised in mortgages as a mortgage broker.
- Negotiates on your behalf: When your credit score is unfavourable, a bank will most likely reject your loan. However, a broker might still be able to arrange something for you if you have difficulty getting approved by banks.
The Cons Of Hiring A Mortgage Broker:
- Broker’s fees: Brokers require payments from either the lender, or you. If you’re the one paying for it, factor it into your mortgage costs while judging how good the deal is.
- Be sure to settle all money matters before you sign any agreements with the broker.
- If the broker’s fees are being paid by the lender, you should be concerned if you’re being led to more expensive loans because the broker earns more commission.
- No guaranteed estimates: Mortgage brokers will use the term “good faith estimate (GFE)” when presenting offers from lenders to you. This means that the broker believes the offer is representative of the loan’s final terms. However, the lender may change these terms based on your actual application, and you could end up with a higher rate, or additional fees.
- Additional mortgage broker fees: Depending on the type of mortgage you need, you might have to pay additional fees to your broker.
- No higher authority to report to: If you have an issue with your broker, you’ll need to deal with your broker directly and sort it out on your own. There isn’t a higher authority to which you can voice your complaints.
Here’s a summary of all the pros and cons of hiring a mortgage broker:
The Pros |
The Cons |
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How Do I Find The Right Mortgage Broker?
There have been cases where brokers push borrowers into loans that they can’t afford.
Hence, it’s important that you choose your broker carefully, since getting a housing loan is a major undertaking.
1. Do Some Research Before You Meet A Broker
Have a good understanding of the average rates for the type of mortgage you want. You may try searching online for potential loans, and get a clear idea of what you’re looking for.
You can also make use of PropertyGuru’s mortgage calculators to compare different rates and equip yourself with some additional knowledge.
By doing so, you’ll be able to assess the broker’s terms more accurately.
Do keep in mind that a mortgage broker isn’t obligated to provide you with the “best” loan, or the cheapest ones, just the ones that are suitable under your financial condition.
If you can get a better quote from a bank, you may want to consider dealing with the bank directly.
2. Check The Broker’s Experience And Track Record
A good mortgage broker should be able to present you with a number of options, and clearly explain their reasons for recommending some specific loans to you.
Top-notch brokers tend to be the ones that work with a high number of lenders.
Ultimately, no matter who you choose to deal with, there’s one thing that won’t get affected by your choice – down payment!
We hope that this article has been useful for you in deciding whether you should hire a mortgage broker. If you’re planning for your first housing loan, do have a look at our guide in housing loan application. If this is your first property purchase, we have a complete guide on buying a new house in Malaysia that will help you through this big milestone in your life.
