5 myths about getting your home loan direct from a bank
When it comes to getting a home loan, there’s a few myths that persist regarding whether you’re better off going direct to the bank or using a mortgage broker. I’ve written elsewhere about why you’re better off going with a broker, but here are some common myths about going direct to a bank.
1. It will be easier because you’ll need to provide less documentation.
Picture this, you’ve been with a bank for a few years, so you figure that they know everything there is to know about you, right? They can see when you get paid, how much you spend on things, and your savings. What else could they possibly need when it comes to getting a home loan?
The truth is that while banks like to play this card often (because who doesn’t love the idea of convenience), the reality is that when you apply for a home loan direct to a bank, you end up needing to provide pretty much the same amount you’d get for a broker anyway. You’ll still need to get your payslips, your tax returns, your financials if you’re self-employed, and you’ll still need to go through the process of filling in all the forms for the application itself.
The difference when you’re going with a broker is that a broker will sit down with you and help you do all these things. All told, gathering the necessary documents will take you around half an hour or so if you’re halfway competent on a computer, and a semi-organised person.
2. It will be faster
I understand the reasoning behind this train of thought. It feels like when you go into a bank and you see all the bank staff there, then one of these guys must be the ones who approves your home loan, right?
When a bank branch does up your home loan application, it goes to the exact same place as when a mortgage broker submits your application. Credit assessment is an entire division with banks, whose sole job is to figure out which loans to approve and decline. A lot of the time, the people who assess your home loan won’t even be in the same city as you, and in some instances (with one Big 4 bank in particular) not even in the same country.
Your home loan application that you went through and did in branch goes into the same queue as if you had gone through a broker, so they’ll take the same time to get assessed. The advantage the broker has here is to recommend other lenders who can get your loan approved faster if you’re running out of time on your finance clause.
3. Because they work in a bank, they will know more about loans.
Bank staff are trained to recommend a variety of products, including savings accounts, transaction accounts, credit cards, term deposits, personal loans, business accounts, overdraft facilities, and yes, home loans. In many cases, they end up being the jack of all trades, but master of none. The vast majority of mortgage brokers on the other hand, deal solely with home loans, day in day out. The sheer variety of loan types that brokers are exposed to will mean that you’re dealing with someone with more varied experience, as well as a greater understanding of where that banks products lie in terms of how competitive they are in relation to the rest of the industry.
Also, consider this. When you only have 3 or 4 home loan products at your disposal like most branch staff, you’ll attempt to move customers into one of those products, even if it isn’t right for them. “When you only have a hammer, you’ll see every problem as a nail” rings true when dealing with branch staff members in many instances.
4. Because they’re a big institution, they’ll be held accountable.
If you’ve ever made a complaint to a big company of some description before and you’ve wanted it resolved in a timely fashion, you don’t need to read this one. You’ll already know what I’m talking about. For the rest of you, read on.
It’s understandable to think that within a large company, staff members will be held more accountable for their actions or inaction. The truth is, that within the cogs of any large organisation, it’s too easy to apportion blame elsewhere or for the lines of responsibility to be blurred. When you get a home loan through a bank branch, you’ll end up dealing with several different people throughout the process. It’s very rare to have a singular point of contact.
When you go through a mortgage broker, they’re the only person you’ll speak to the entire time, as the broker works as something of a project manager on your behalf. Also, unlike the above, it reflects extremely poorly on a broker when they have poor google reviews or feedback as this will directly impact their business and ability to earn. That bank staff member will continue to be paid the same wage regardless of the service they provided to you, and regardless of the nasty review you left on Google.
5. Because you’ve been with the bank a while, they’ll be able to do a good deal for you.
Banks might give you a nice introductory deal, but will they continue to keep that deal good? It’s a well-known practice that banks make most of their money on their existing business, and as I’ve written about elsewhere, you lose when you’re loyal. Banks are directly incentivised to have you paying as much interest as possible, without tipping you over the edge and making you leave.
On the other hand, brokers aren’t paid based on interest rate. They don’t make any more if you’re paying 4% rather than 3.5%, and will continually review your loan for you to make sure you’re not paying more than you need to.
So next time you hear someone spray about one of the above myths, set them straight.