Who Decides The Size Of Your Mortgage?
You or the Broker?
A Larger Mortgage Means More Broker Commission
Well the typical mortgage broker gets over 0.5% of the initial value of your mortgage and a trailing commission of around 0.15%.
With a typical 30 year mortgage having a life of around 6 years the total commission is going to be around 1.3-1.4%.
That’s $3,900 -$4,200 for a $300,000 mortgage, with an additional $1,300 – $1,400 for every additional $100,000.
Do you think that means there might be an incentive for the broker to ‘stretch’ you to a bigger mortgage?
Sounds great if it means you can get a bigger house, but a lot of people that have been sold that story are suffering mortgage stress!
But Doesn’t The Broker Gets You The Best Deal?
I’m not so sure, as the banks own most of the big name brokers, for instance:
- Commonwealth Bank owns Aussie Home Loans
- NAB owns First Choice
Do you think there might be some pressure to direct your custom to the Big Bank?
If you are getting offers from subsidiaries, of a big bank are they really that different?
Bank of Melbourne, Bank of SA, and St Georges Bank are all subsidiaries of Westpac.
An independent broker won’t have as much pressure to use a non big bank lender, but they may want to use a bank with a higher commission level.
After all consumer law only requires to the broker to identify a ‘Suitable Loan’ not the ‘Best Value’.
So What Can You Do?
- Before you go to a Broker think about how much you can safely repay,even if interest rates go up.
- Treat brokers as you might treat a typical purchase. . . . . ask a couple of different ones for a quote.