10 January 2019
Bank or mortgage broker? Where to go for your first home loan
Arranging your first home loan can spark many questions. Do I have to get a home loan from my current bank, or can I go to another bank? Which home loan providers offer the best interest rates for first home buyers? And what does a mortgage broker even do? All good questions!
On your journey to first home ownership, one major factor is where you get your home loan from. The most common approaches are dealing directly with a bank or a mortgage broker. There are pros and cons to each and we’ll note a few things here for you to consider, which may help you choose what sounds best to you.
Contrary to what a lot of people think, mortgage brokers advise and arrange home loans for buyers for free. This is because banks pay them commission. The rate is roughly the same from each bank, so a mortgage broker’s decision on which bank’s offer is best for you shouldn’t be based on the commission they’ll get.
A bonus about partnering with a mortgage broker is that you only need to apply once for your pre-approved finance and home loan, and they’ll do the legwork by shopping around the banks on your behalf. They’ll identify and share the right finance option and deal for you. Good mortgage brokers can negotiate great deals because they understand what competition is out there.
Mortgage brokers are required by law to be registered financial advisors, so be sure to check yours is listed on the Financial Service Providers Register
Banks have specialist home loan mortgage advisors and you can apply for a home loan from a bank you don’t already bank with. The benefit of dealing directly with a bank is that you may get an offer sooner, but if you want to compare various deals, you need to apply at each bank you’re interested in. This may be a good option if you’d prefer full control of the research and comparison process. If you would like a loan from your current bank but get a better offer from another bank, take that offer to your bank. They may match the other offer to retain your customer loyalty.
There are also lenders like credit unions and building societies and you can see what they offer in comparison to banks by using online tools, such as the home loan comparison tool on Finance.co.nz. You can see what is on offer from a range of home loan lenders, based on your criteria. Interest.co.nz also has detailed comparisons on mortgage rates across many lenders.
Whichever way you go, it’s important to remember the 80:20 rule. It doesn’t matter how big or small your home is or how much it costs, most lenders will require you to put down 20 per cent of the value of the home as a deposit. The remaining 80 per cent is borrowed as your mortgage which you’ll be required to pay back, with interest, over a set period of time. (Haven’t started saving yet? Read our blog on steps to start saving.)
For more top tips on how to go about buying your first home, download our helpful Financing your first home guide.