Mortgage broker vs bank: who does what, how brokers are paid, and which to use

What does a mortgage broker do?

Moneysmart calls a broker "a go-between who deals with banks and other lenders to arrange a home loan". A broker works out what you can afford, finds options from the lenders on their panel, explains how each works and what it costs, and helps you apply and get to settlement. A bank's own lender does the same with that bank's loans only.

Broker or bank, side by side

The best interests duty

Since 1 January 2021 the National Consumer Credit Protection Act has required brokers to act in a borrower's best interests and, where there is a conflict, to put the borrower's interests first (sections 158LA and 158LB). ASIC's guidance says a broker must not suggest you stay in a loan without considering whether that is in your interests, and should weigh the costs of refinancing. Moneysmart says a broker "should present you with more than one option" and explain why the one recommended is in your best interests.

How do mortgage brokers get paid?

"Lenders generally pay mortgage brokers a commission for distributing their products, so you don't pay them directly," Moneysmart says. The commission is a percentage of the loan, usually an upfront payment plus a smaller ongoing "trail". ASIC's 2017 review gave a typical example: on a $500,000 loan, an upfront commission of 0.62 per cent ($3,100) and a trail of 0.18 per cent a year, shared between the aggregator and the broker. Brokers must tell you the commissions they may receive. If a broker charges you a fee, they must set it out in a written quote that you sign first, and cannot ask for it before providing the service.

Questions to ask a broker

From Moneysmart's own list:

• Do you offer loans from a range of different lenders?
• How do you get paid for the advice you're giving me?
• Why did you recommend this loan to me?
• What fees will I have to pay when taking out this loan?
• Can you show me a couple more options, including one with the lowest cost?
• What is the threshold for lender's mortgage insurance (LMI) and how can I avoid it?

It is also worth asking which lenders are not on the broker's panel, so you know what the comparison leaves out.

How a broker works, step by step

1. Check the licenceMoneysmart says to make sure a broker has a licence to give credit advice before you meet. Search ASIC's Professional Registers for the "Credit Licensee" or "Credit Representative" register. Five minutes online
2. First meeting and credit guideThe broker learns your income, spending, debts and goals. Under the National Credit Act they give you a credit guide, which names their licence, fees, how they are paid and how to complain.
3. Preliminary assessment and optionsThe broker must assess that the loan is not unsuitable for you, and the best interests duty means they should show you more than one option and explain why they recommend one.
4. Credit proposalWhen they recommend a particular loan, they give you a credit proposal disclosure setting out fees and a reasonable estimate of the commission they will receive.
5. Application to settlementThe broker submits your application, chases the lender and valuer, and works through to settlement. Same lender timeframes as going direct

How much do you need to earn for a $700,000 mortgage?

Whether you go through a broker or a bank, the lender applies the same two tests:

• The serviceability buffer. APRA expects banks to check you could repay at your rate plus 3 percentage points. At today's average new variable rate of 6.20%, a $700,000, 30-year loan is assessed at about $5,733 a month, against an actual repayment of about $4,287. Your income, after tax and living costs and your other debts, has to cover the higher figure.
• The debt-to-income limit. Since 1 February 2026, APRA has capped each bank's new lending to borrowers owing six or more times their income at 20 per cent of its new loans. To keep a $700,000 debt under six times income, you need gross income above about $116,700, before counting any other debts such as a car loan or credit card limits.

A couple with no other debts and a combined income near that level may be approved, but living costs, dependants and every credit limit change the answer. A broker can run the same numbers across several lenders' calculators; a bank runs only its own.

What to tell a broker, and what not to leave out

The broker has to verify what you tell them, and lenders check again. Give the complete picture from the start: every debt and credit card limit, buy now pay later accounts, HECS-HELP, dependants and any income that is irregular. Leaving something out does not make you look stronger. It makes the preliminary assessment wrong, and a loan the lender declines late, or one you cannot afford, is the outcome the rules exist to prevent.

Should you go through a mortgage broker?

A broker tends to add the most when the loan is less straightforward:

• Self-employed or irregular income. Lenders treat business income, contract work and bonuses differently, and a broker knows which ones accept fewer than two years of tax returns. See self-employed home loans.
• Government schemes. The 5% Deposit Scheme and Help to Buy work only through participating lenders, and not every lender is on both lists.
• Borrowing close to your limit. Lenders' living-cost assumptions and treatment of other debts differ, so the amount they will lend can differ by tens of thousands of dollars.
• Refinancing. The best interests duty means a broker must consider whether staying put is better for you, including the costs of switching.

Going direct suits borrowers who already bank somewhere that prices them well, have simple salary income and a large deposit, and are comfortable comparing lenders themselves.

Comparing a broker's offer with your bank's

Put the two offers side by side on the same terms: the same loan amount, the same term, principal and interest, and the same features, such as an offset account. Then compare:

On a $600,000, 30-year loan, each 0.25 points is about $98 a month at today's average rate of 6.20%. Over five years that is several thousand dollars, which is why the rate usually matters more than how the loan was arranged.

Investment loans: bank or broker?

The same rules apply when you borrow to invest. Brokers owe you the best interests duty on investment loans as well, and lenders apply the same serviceability buffer. Investor rates are usually higher than owner-occupier rates, and some lenders limit lending at higher loan-to-value ratios for investors, so comparing more than one lender often matters more than for a home you will live in.

If something goes wrong

Moneysmart's order is: talk to your broker first; if that does not fix it, complain to the broker's business in writing; then contact the Australian Financial Complaints Authority (AFCA), which offers free, independent dispute resolution. Credit licensees must belong to AFCA, and the credit guide tells you how to reach both.

When going direct can make sense

If your own bank already offers you a sharp rate, or you want a loan from a lender that does not deal with brokers, going direct is simpler. Some lenders offer certain deals only to direct customers. Either way, compare the comparison rate and fees, not just the headline rate.

Common questions

Related: Home loan pre-approval: how it works, how long it takes and how long it lasts · Self-employed home loans: the documents lenders want, and the options if you cannot show two years

General information only, not credit or financial advice. We are not a lender or a broker and hold no Australian Credit Licence. Rates shown are RBA market averages, not offers.