For someone who does not have a background in the Mortgage Industry, the multitude of finance providers in the Australian Home Loan market and their various titles can prove to be quite confusing. If you believe the advertising material in the media, each and every finance provider offers the best products and services available which are absolutely essential to your financial well-being. Is that really true? Who are these different entities and how do you choose between them?

Mortgage Brokers

Mortgage origination is the term used to describe the process by which an individual or a business arranges finance for a client. Mortgage Originators, also known as Mortgage Brokers, match borrowers to various finance providers (lenders). Another term which is also used to describe Mortgage Brokers is – Mortgage Introducers. Around 35% of all mortgage business written in Australia today is through Mortgage Brokers.

The main advantage of using a broking service is that in matching your specific loan requirements to the available loan products a broker has access to a multitude of lenders and products – hence someone does the shopping around for you. This can potentially save you a lot of time and money.

Some brokers will charge an additional fee for their service while others will not. In choosing one broker over another it is also worthwhile to consider what other service the broker provides. Some mortgage brokers are also qualified Accountants or Financial Advisors – while their services may cost a little more upfront, their benefit of their qualifications and experience can be quite advantageous in structuring your loan.

Mortgage Managers

A Mortgage Manager borrows or buys funds from a wholesale lender. They then re-badge the money borrowed under their own ‘brand’ of loan while adding a margin on to the interest rate. That margin constitutes their profit. Well known mortgage managers include Aussie Home Loans, RAMs. Wizard etc.

The Mortgage Manager aside from marketing their loan products are also responsible for the credit assessment of each loan application as well as processing the loan to settlement and the ongoing management of the loan after settlement.

Aggregators

Most of the major Australian lenders generally set a minimum monthly volume of loans expected from a broker before such a broker can have access to their loan products. This can mean that a broker must write several million dollars in loans each month in order to qualify as a broker with each lender. Aggregators position themselves between brokers and lenders. For a small fee they will aggregate the business written by smaller brokers whose loan volume is too small to work directly with a lender.

Banks

Up until recently, Banks have been the main source of all mortgage products in Australia. In today’s competitive mortgage market banks generally do not offer as wide a range of lending products as do some of their Mortgage Manager and Mortgage Broker competitors. Banks therefore tend to concentrate the bulk of their mortgage business on clients with good credit histories and those who have available financials to support their loan application.

Traditionally banks lending criteria has been very rigid. over time and in view of growing competition from other funding sectors, banks have had to re-evaluate some of their policies.

Non-Conforming Lenders

These lenders specialise in loans for people who do not qualify for loans with the traditional bank lenders.

The sort of customers that are best served by Non Conforming lenders include:

• persons with poor credit;
• ex-bankrupts;
• overseas residents;
• pensioners;
• seasonal workers;
• self-employed without full financials etc.

The low doc and no doc loan products available through the non-conforming lenders have helped out a lot of customers previously unable to obtain a home loan. Well known non-conforming lenders include Pepper Home Loans, Bluestone and Liberty Financial.

Credit Unions and Building Societies

Credit Unions and Building societies offer similar loan products to the better known lenders, where they win is on greater customer service focus, lower fees than some of the better known banks, more flexible lending policies as well as sometimes longer hours of operation.

Being regionally based they tend to have limited facilities outside of their region and are generally used by local residents.