Who pays a mortgage broker?

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When it comes to choosing a mortgage broker or mortgage adviser, there are quite a few things to check out and carefully consider. This article will help you to ask the right questions, so that you can choose a broker that suits you. For example, you’ll need to know whether a broker will charge you a fee, who else pays the broker and is the broker being offered more commission by some lenders than others? But let’s begin with what a good mortgage broker does.

When you’re ready to get started, we have a free service that connects you with a specialist from our handpicked panel of award-winning mortgage advisers. They’re some of New Zealand’s best.

In the meantime, let’s begin with what a good mortgage broker does.

What does a mortgage broker do?

Mortgage brokers are also called mortgage advisers. These two names provide a high-level description of what a mortgage broker should do for you.

One is to broker a deal by operating as your representative to negotiate the best loan for your circumstances. The second is to act as an adviser, which means presenting options for you to choose from, explaining them fully and answering any questions you may have.

For a broker to do these things well they should:

  • Explain how they’ll work with you and what they may charge in different situations
  • Tell you which lenders they deal with and what commission each one offers them, if any
  • Let you know what they can legally advise you about and how much experience they have in each area
  • Take the time to fully understand your finances, needs, preferences and future goals
  • Calculate how much you can reasonably afford to borrow and explain the outcome to you
  • Find the best mortgage options for your situation, explain how each one works, the positives, negatives, unique features, fees, interest rates and all other costs
  • Help you to choose your preferred option, but not make the decision for you
  • Manage the application process on your behalf, keep you updated on progress and see your mortgage through to drawdown on settlement day
Top Tip

It’s important to choose a mortgage broker you feel you can trust and work well with. They’re helping you make one of the biggest investments you’ll ever make, and they’ll want to know a lot about you and your finances. Apart from third party recommendations, you may need to trust your gut feeling around a broker’s professionalism and personality.

How does a mortgage adviser or broker get paid?

There’s no single answer to this, but in most cases banks pay the broker a commission for bringing a new mortgage customer to them who signs the deal, draws down the mortgage and, in many cases, stays with the bank for a minimum length of time. This usually means you don’t have to pay the mortgage broker anything. But there are some exceptions.
When you might have to pay a mortgage broker

If a mortgage broker doesn’t receive a commission from the lender, or has to pay it back, the broker will usually charge you a fee instead. Here are a few examples of when this might happen:

  • When the lender doesn’t pay a commission: Instead of paying the broker a commission, some mortgage lenders – typically finance companies rather than banks – require a broker to add their fee to your mortgage. You should always be told whether this applies before agreeing to a particular mortgage.
  • When you don’t stay with a broker: If you sign up with a broker and they work with you, they may charge you for their time if you don’t draw down a mortgage arranged by them. This could be hundreds of dollars an hour, but it will usually have a maximum total of around $2,500.
  • When you repay your mortgage early: If you repay your mortgage in full or switch to another lender within a set time (typically about two years and three months) the broker will usually have to repay any commission involved. They may charge you a fee to cover their loss. As in the previous example, this could be based on their time and capped at a maximum amount.
Top Tip

Before you sign up with any broker, be sure to ask for a list of all fees they could charge.

Do mortgage brokers have favourite lenders?

While they probably do have preferred lenders for a variety of reasons, a mortgage broker must always treat you fairly and act with integrity. It’s part of their code of professional conduct.

Any preference they have should be explained to you, including how that supports your situation and goals.

Different lenders offer brokers different commissions
Mortgage lenders or banks set their own commission rates, which might range from something like 0.6% to as high as 1.5% of the loan amount. Some of the banks offering a lower upfront commission may boost this with an ongoing reward of around 0.2% for each year you keep the same mortgage. Others offer the broker around $150 each time you choose a new fixed interest rate period for your mortgage.
Top Tip

A good broker will disclose the commissions they are offered by different lenders. If they haven’t shared them with you, you can always ask for a copy.

Does a mortgage broker deal with all the main lenders?

Some do and some don’t. It can be a useful question to ask before you sign up with a broker, particularly if you’re going in with a couple of preferred lenders in mind.

Obviously the more lenders a broker can work with, the more chance they may have of shortlisting the best deals in the market for you to choose from. Their ability to take your mortgage application to a range of lenders offering similar deals can help the broker to negotiate the best mortgage deal for you.

Top Tip

Before you start working with a mortgage adviser or broker, ensure you understand which lenders they represent and which they do not. Some lenders choose a select group of mortgage companies to work with. And some banks won’t work with mortgage advisers at all. It pays to check in advance, particularly if you have a specific rate or lender in mind.

To learn more

DISCLAIMER: The information contained in this article is general in nature. While facts have been checked, the article does not constitute a financial advice service. The article is only intended to provide education about the New Zealand mortgages and home loans sector. Nothing in this article constitutes a recommendation that any strategy, loan type or mortgage-related service is suitable for any specific person. We cannot assess anything about your personal circumstances, your finances, or your goals and objectives, all of which are unique to you. Before making financial decisions, we highly recommend you seek professional advice from someone who is authorised to provide financial advice.

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