Mortgage Brokers Explained

Updated 31 December 2018

Summary of Mortgage Brokers
They hunt the mortgage market to find you a good deal, as well as save a lot of time on form-filling.
They can advise you on everything you need to know about taking out a mortgage and the house-buying process, as well as KiwiSaver withdrawals and grants if you qualify.
They know the key details about each lenders' criteria, and can the right lenders for your situation.

The most important thing is to find a mortgage broker you're comfortable with. Real estate agents you meet at open homes will probably recommend brokers (many have existing relationships and get a commission for any business you bring them). You don't need to go with them.

Our guide tells you what you need to know about mortgage brokers
In this guide, we outline:

What a mortgage broker is, and what they do
The pros and cons of using them
What to be wary of, as well as tips to find one you want to work with
What questions to ask a broker to make sure you're getting the best deals in the market

What is a mortgage broker?

A mortgage broker is a person or company that will arrange a mortgage between you, the borrower, and a lender, such as a bank. A mortgage broker works one-on-one with you to find out your exact mortgage need. For example, if you're a first home buyer, wanting to re-mortgage your home or wanting to buy an investment property. The mortgage broker then offers a range of options from different lenders (usually banks) which are matched to your mortgage needs.

What exactly does a mortgage broker do?

A mortgage broker has a lot of insight within the housing industry, and can an identify the best lenders and mortgage deals available throughout New Zealand. Mortgage brokers must act with your best interests and have a duty of care in how they behave - this means they must be able to explain and justify any mortgage recommendations they make.

Mortgage brokers base their shortlist of suggested mortgage deals on your specific circumstances. These include:

Whether you're buying an existing home, a new-build or an apartment
Your income
The size of your deposit
Your credit history and how much you can afford to spend on mortgage repayments

Mortgage brokers will shortlist mortgage deals based on:

The interest rate
The deposit required
The fees charged upfront
The term of the mortgage

Who uses a mortgage broker?

In most cases, first-home buyers are reported to make up the bulk of the customer base of mortgage brokers. This is due to an increasing trend for real estate agents to recommend their mortgage broker partners, increased advertising from mortgage brokers all over New Zealand, and a growing distrust of banks.

Why use a mortgage broker?

A mortgage broker is experienced in the entire process of finding and applying for a mortgage. They also can answer a number of related questions to the financing of your home purchase. They can incredibly helpful for first-time home-buyers who might otherwise be lost in the detail. A mortgage broker can also save a lot of time by finding out the best offers from every lender, saving you from making individual appointments with banks. A mortgage broker may also help you to assess your financial situation and make an overall recommendation of the best mortgage for your needs.

Unlike a bank which has its own lending criteria, mortgage lenders are motivated to find you a mortgage deal that works. For this reason, they offer expertise for a range of situations, including:

Anyone who is self-employed
Anyone looking to refinance and re-fix their existing home loans
Anyone wanting a home loan for new build construction loans
Anyone who is a first-home buyer
Anyone looking to make a property investment
Anyone from New Zealand who is currently living overseas

What are the advantages and disadvantages of using a mortgage broker?

Advantages

Convenience – mortgage brokers have access to the current interest rate deals and save you time contacting each bank to see if you're eligible. They also help with preparing the paperwork that comes with taking out a mortgage.
Cost-Effective - if you are offered a mortgage deal that beats the current bank offers, you will save money.
Access – due to their professional relationships, a mortgage broker will, in most cases, be in contact with a wide range of lenders. This means they may have a good chance of finding you a deal that suits your needs.
Pre-approval - if you don't know what property you are looking for, mortgage brokers can arrange pre-approval of your mortgage so you know exactly how much you can borrow. This lets you house hunt with confidence.
Expertise – mortgage lending is a specialist industry; a mortgage broker is an expert who can explain what you need to know and what to do in plain language. They can also advise on the KiwiSaver HomeStart grant and KiwiSaver First-Home Withdrawal processes and help you with a plan to organise this specific financing.
Quality of service– if you have a good mortgage broker, the can be incredibly helpful in the entire process. Surveys reported in the media revealed that the mortgage interest rate isn't the most important factor when assessing customer satisfaction with brokers - it is service. Given most banks offer the same (or very similar) rates, this makes sense.

Disadvantages

Cost – while you don't pay any fees directly, the lender does pay a commission on your total mortgage value. This means that you may have been offered a better deal had you gone directly to the lender.
Limitation of offers – not all mortgage brokers work with every bank, so your options may be limited unless you ask upfront about who is excluded.

Are all mortgage brokers the same?

Mortgage brokers come in all sizes, from one-person-operations to well-known companies such as Mike Pero Mortgages or Squirrel Money. In almost all cases, a mortgage broker will work through a group - this is usually the NZFSG, who is able to negotiate mortgage rates and terms with lenders. The NZFSG and your mortgage broker will both negotiate a commission if you go ahead with a mortgage deal.

While every mortgage broker is different, some cover the 'whole of the market' (or as close to it as possible), meaning they don't have any links to a particular bank or banks. But some mortgage brokers are more limited, which means you may just be offered deals from two or three banks. These deals may not be the best in the market. It's important to ask upfront who your mortgage broker works with - see our questions to ask (LINK) below.

In some cases, real estate agents own mortgage brokers. For example, Mortgage Express is mostly owned by Harcourts and its related entities. You are completely free to find your own mortgage broker even if you are recommended one by a real estate agent.

How much does a mortgage broker cost?

There are no upfront or service fees. Mortgage brokers make their money from commissions paid to them by the banks. You won't necessarily pay more for your mortgage either. Mortgage brokers work the same as travel agents who earn commissions from airlines and hotels etc. It is up to you to decide which bank and mortgage deal you want - the mortgage broker will be then paid by the lender you pick. Industry insiders suggest this can be as high as 1% of your loan amount; your broker could earn $5,000 from a $500,000 mortgage. But the law states that mortgage brokers are not required to disclose commission payments.

Is there anything I should be wary of?

Mortgage brokers may not work with every bank, so it's important to ask upfront what lenders won't be included so it's clear what you are comparing.
Cross-selling is being reported; this involves you being recommended insurance policies by a mortgage broker or one their associates. As insurance is very lucrative; there may be a lot of pressure to buy. You are under no obligation to and our guides to life insurance, contents insurance, and income protection insurance outline what you need to know.
You may also be recommended conveyancing services by a related law firm. You are under no obligation to hire the lawyers suggested by your mortgage broker.
If a real estate agent is insisting you use their recommended mortgage broker, you don't have to. You don't even need to use a mortgage broker at all.
Many banks promote mortgage deals with free holidays, cashback and various other perks if you go with them direct. If you go with a mortgage broker, you won't receive these perks.

How do you I find the right mortgage broker for me?

A simple Google will show a lot of mortgage brokers awaiting your call. Media reports suggest 40% to 50% of mortgages are arranged through a broker, so asking family and friends for their recommendation is a good place to start.
You can also ask your estate agent (if they haven't suggested one already).
Banks have their own mortgage advisors, and it's worth making an appointment with your bank to see what they can offer. Because they know your financial situation, they can tell you your mortgage options with them. Other banks may offer different options based on your circumstances.

Know this: It's important to remember you don't need to go with the first broker you talk to, and more importantly, you’re in no way obliged to go with the mortgage broker a real estate agent recommends, even if you buy your home with them. There are mortgage brokers all over New Zealand and many have Google reviews so you can get an idea of their service.

What should I ask a mortgage broker to make sure I get the best deal and service?

As mortgage broker expertise and access to deals varies from one to another, by asking two essential questions:

How many lenders do you work with? The more lenders (i.e. banks) the broker has a relationship with, the higher the chances you'll get the best deal. A good answer is at least five banks, but the more they cover the better for you.
What are your fees and commissions? You can ask that, even if they are not legally obliged to tell you. If they do, it will probably create trust and help you understand a little bit more about how mortgage brokerage works.