What is a mortgage broker?

What is a mortgage broker?

A mortgage broker acts as an intermediary who sources mortgages on behalf of individuals or businesses.

Traditionally, banks and other lending institutions have distributed their own products. However, as markets for mortgages have become more competitive, the role of the mortgage broker has become more popular. Today in most developed mortgage markets (especially the U.S., UK, Australia, Spain and Canada) mortgage brokers are the largest distributors of mortgage products for lenders.

The majority of mortgage brokers are regulated to ensure a level of protection for the consumer. The extent of the regulation depends on the jurisdiction.

Why use a mortgage broker?

In competitive mortgage markets, many lenders use an array of rate offers and other incentives to attract customers. To many consumers, due to their infrequent purchases of mortgage products, the mortgage market may appear confusing and somewhat daunting. A mortgage broker can guide them through the process of selecting a suitable mortgage and offer mortgage and property related financial advice.

For borrowers with poor credit records, or other unusual circumstances, finding a lender may be difficult. A mortgage broker, having specialized knowledge and multiple lending sources, will normally be a valuable resource in obtaining financing.

What tasks do mortgage brokers perform?

A broker is responsible for ensuring the advice is appropriate for the borrower’s circumstances and is held financially liable if the advice is later shown to be defective. This is known as Best Interest Duty.

Therefore, the work undertaken by the broker will depend on the depth of their service and liabilities. Typically, the following tasks are undertaken:

• Assessment of the borrower’s circumstances. This may include assessment of credit history (normally obtained via a credit report) and affordability (verified by income documentation).

• Assessing the market to find a mortgage product that fits the clients needs.

• Applying for a lenders agreement in principle (pre-approval)

• Gathering all needed documents (payslips, bank statements, etc.),

• Completing a lender application form.

• Explaining the legal disclosures.

• Submitting all material to the lender.

• Marketing to attract clients

As at January 2024, Mortgage Brokers in Australia accounted for over 65% of all residential mortgages written.

This information has been prepared by PHA Financial Services and does not take into account your objectives, financial situation or needs. Before acting on this information you should consider whether it is appropriate to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. The information provided was accurate at the time of publication and changes in circumstances after a document is published may impact on the accuracy of information. Some information may have been collated from various third parties and we make no assertion that the information was originally ours.