I’m a little tired of people who listen to bankers or property agents, then complain to me about how bad their loan situation is. That’s like getting life advice from a convicted felon, then acting all surprised when you’re eating baked beans in the Changi Prison canteen. I’ll say it again: Property agents and bankers usually do not have your best interests at heart. Most lack the compassion to nurture bacteria, let alone your well being. In this article, I look at why it’s mortgage brokers who can get you the best deal:
Why Do Bankers Give You Bad Deals?
Let’s start with the obvious. Bankers get a commission when they sell you a home loan. A percentage of your loan value goes toward their bonus; because apparently, being paid $4000 – $5000 to sit on their asses and answer phones all day isn’t enough.
So let’s say I work for the International Bank of Rip-Offs. My bank’s home loan interest rates are astronomical; maybe the worst in the country. But if you come to me and ask for a home loan, would I turn you down? Am I going to say “I must be honest. DBS or HSBC has a better rate”?
Yeah, when cows crap gold I will.
Every banker will tell you she’s offering the best rates. Even if she’s not interested in her commission (in which case she’s the Mother Theresa of finance or something). Her boss would chew her out. Employees, as a general rule, are discouraged from telling customers that “Our company’s financial product is crap, go somewhere else”.
There is only situation when the banker would refer you to someone else; and that’s if you don’t qualify for the loan with their bank.
Now, of the 12 banks offering loans locally, just one or two will have the cheapest rates. And every month or so, the situation changes. So this month DBS may be the cheapest, next month it could be Bank of China. But the banker is not going to explain this to you.
Okay, How Does My Property Agent Come In?
Banks pay a referral fee to property agents. When your property agent refers you to a banker, and you agree to go through that banker, your agent gets paid.
As such, property agents and bankers work hand-in-hand. Your agent has a vested interest in having you use “his” banker, because it means extra money for him. If you find your own home loan, or go through a mortgage broker, your property agent won’t get the referral fee.
Since loan repayments don’t affect the price of your house, your agent has little interest in finding you the best deal. He just wants to get his referral fee asap; that involves pointing at the first banker in his phone book.
There have also been cases where property agents resort to threats: If you don’t use their banker, they hint at raising the price or letting the deal fall through.
In short, your property agent may not care that you get the cheapest loan. It takes time and effort to compare loan rates, and the agent has little reason to bother because it’s not part of their core business. Whether he gets you a cheap or expensive loan, he still gets a referral fee.
So what should you do?
Get A Mortgage Broker
A mortgage broker’s sole job is to compare home loan packages. He just stares at the changing rates all day, until alcohol or boredom drives him to an early death. Even then it could be weeks before his colleagues notice.
If you go to a home loan comparison site like MoneySmart, these brokers are the people who’ll call you. And they’ll find you the better deal because:
- Information is their sole product
- They have a wider view of the market
- They are not biased toward any bank
Information is Their Sole Product
Mortgage brokers don’t sell houses. They don’t sell loans. They sell information. It’s their one product. And they can’t make a living if their only product turns out to be crap.
Yes, mortgage brokers get the loan referral. But beyond that, the broker counts on you to go around saying: “Hey, this guy’s information / advice is up-to-the-second. He saved me a bundle.”
This is different from most bankers and property agents, who either don’t care about buyers’ ignorance, or profit from it.
They Have a Wider View of the Market
Most bankers only know their own rates. Even if they knew others, they wouldn’t tell you. Unless, of course, you fail to qualify for their loan.
Your property agent might know one or two good deals. They might know the best deals from last April. But when you start asking for no lock-in or no penalty packages today, most just shrug. And say something like:
“I dunno, I guess random banker #64 would be good; he has a really nice tie. Just put my name in the referral bracket okay?”
If you want the widest, more current view of the market, you need a broker. Hell, even property agents and bankers call brokers for information. Why shouldn’t you?
They Are Not Biased Toward Any Bank
When you use a reputable online broker’s services, there’s a nice big chart showing you the alternatives. All the results are aggregated on one page, and a single phone call will affirm the rates you’re quoted.
As such, brokers are more inclined to point you at a decent bank. They will get nothing but customer complaints if they pick a bad bank or lie. Contrast this with bankers, whose bonuses depend on a sort of “lies per second” gauge.
So find a good broker. If you’re taking on the biggest loan of your life, you can spend an extra 10 minutes calling one. Most of them don’t even charge for their service; MoneySmart, for instance, is free.
Have you ever used a mortgage broker? Comment and let us know!
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