When is cheaper not necessarily better?

With all the hype around record low interest rates it's easy to get tunnel vision and focus only on the lowest number when choosing a home loan provider, however finding the right loan is about much more than just the best rate.

When assessing possible options for home loans, borrowers frequently assume the ones with the lowest possible rates to be the best without being mindful of other considerations such as fees and charges or loan features.  A recent ASIC’s report into client experiences and expectations with mortgage brokers and getting a home loan highlighted several big misconceptions around what constitutes the “best” deal. 

So, what does constitute the “best” option when your clients are looking for a loan? Is it the cheapest interest rate? $0 annual fees? Multiple loan features like an offset account or redraw facility? Or a balance of varying attributes? 

The reality is, as you know in your own profession, that there is no single definition of “best” - the “best” home loan, is the one that takes into consideration your client’s individual circumstances, preferences and future goals. 

This is the point at which a broker, rather than a direct lender, comes in handy as their priority is the person, not the product. 

As you will know, for many of your clients and mine, the journey in search of a home loan can be complex, multifaceted and nonlinear. The purpose of going through a mortgage broker is to make sense of this process, and to eliminate the legwork required in shopping around to compare rates, products and features to ensure the borrower is getting the “best” deal on their mortgage. 

Of course, a bank will also do this, but only on the loan products they offer, which are a fraction of what is available to a broker. This by its very definition means borrowers who only visit their existing bank are not getting the best deal! In fact, did you know that across the 53 lenders on our panel, there are over 25,000 individual loan products to choose from? Not all will be suitable for your client and their situation, but that’s an example of the breadth of choice brokers offer!

For the 96 per cent of borrowers that were either “very satisfied” or “satisfied” with the service delivered by a broker as stated in the report, the expectation is that the broker has the knowledge, experience, qualifications and lender network to review and assess loan products against a customer's individual circumstances, and put forward a number of options that they believe are in the best interests of the customer.

A Loan Market mortgage broker’s role is to take the time to assess and understand your client’s objectives, financial situation and needs upfront, before reviewing the vast number of products available to them from our lender panel. The outcome of which, is a number of loan options that they believe offer them the best value in the long term, presented in a way that easily allows them to meaningfully compare loan options and empowers them to make an informed decision.

That may not be the loan with the lowest rate, if that loan also includes a high annual fee and/or limited features that will cost more over the long term than the interest on the extra 0.02% they’ll pay. It may not even be one loan. Depending on circumstances, some customers may elect to split a loan, with a portion fixed, and a portion variable - if there was the possibility of interest rate rises (which might presently be a couple of years off!) and they wanted to hedge their bets, for example.

At the end of the day, a Loan Market broker works for your client to understand their situation and objectives, then we research and assess available options before clearly presenting your client with the loan products they believe best suit their circumstances, accompanied by an explanation of the options considered and reasons for their recommendation, so they can make an informed financial decision that will benefit them over the long-term.

That’s what “best” looks like to me.