Should I use a mortgage broker, or go direct?

If you’re looking for a mortgage, you might be wondering whether or not you should talk to a mortgage broker or go directly to the lender.

These days, brokers do more than simply churn out a list of available mortgages for a hefty fee, so it could be worth your while to see what they can offer.

Why should I use a mortgage broker?

Legislative changes, most notably in the Mortgage Market Review in 2014, have resulted in a tightening of the rules with regards to mortgage “affordability” checks, the qualifications of all mortgage brokers, and the information brokers must provide to borrowers about their services and their fees.

Since the changes, both lenders and brokers must consider your financial situation and assess your affordability when suggesting suitable mortgages for you. Moreover, they must be able to prove they have done this.

Whilst this legislative revolution has made it harder to obtain a mortgage, it’s also made it far safer to use a mortgage broker.

You can now trust they will undertake a full comprehensive financial assessment and therefore only give you a range of mortgages you will almost certainly be eligible for.

With the huge expense of buying your first home or moving house, it may be tempting to consider the ‘cheaper’ option of applying for a mortgage with your own bank, or by going direct to another lender for your mortgage.

However, avoiding paying broker fees (though there are plenty of reputable fee-free brokers out there) to save a few pennies now could could cost you thousands over the next few years if you opted for a bad mortgage.

Even if you think you do not need the advice of a broker and know enough about the mortgage market without one, you may be missing a trick.

Some brokers have access to a larger range of mortgages (such as via exclusive deals with lenders) and can help speed up the application process by getting you fully prepared and steering you towards mortgages you will most likely be accepted for.

Can I get a mortgage directly from a lender?

If you have done your research and found your perfect mortgage, are confident that you have found the best deal, or you simply want the convenience of asking your current bank for a mortgage, then that’s your prerogative.

Indeed, there can be some merits to going directly to a lender for your mortgage…just be aware of the pitfalls too:

Pros

• Some banks offer preferential mortgage rates if you already have a current or savings account with them.
• Some lenders have exclusive ‘direct only’ deals that a broker would not have access to.
• You avoid paying broker fees.

Cons

• The advice you get from lenders will only refer to their own products rather than an unbiased view of the market as a whole.
• You will not gain access to any broker-only deals, even if they’re offered by your chosen lender.

How do I get a mortgage through a broker?

If you are planning to employ the services of a broker, do your homework first: ask friends and family for a recommendation, check the internet for reviews, and suss out their fee structure.

Ask them outright how many lenders they work with – the more lenders, the more options you have at your disposal and the more likely you could be to get a good deal.

Generally, there are three types of broker:

• Tied brokers: These are usually recommended to you by a particular mortgage lender and only offer deals from that one mortgage provider.
• Multi-tied brokers: These offer a limited range of mortgages from a panel of mortgage lenders.
• Independent brokers: Also known as ‘whole of market brokers’, these investigate the entire mortgage market to find the best product for you. However, “whole of market” does not cover every single deal, as the name suggests.
  This is because some lenders, like First Direct, do not work with brokers and only offer mortgages to borrowers directly.

Since the legislative changes, mortgage brokers have to state from the outset exactly what range of mortgages they can offer. For the most wide-ranging advice and products, it is always advisable to choose an independent broker that offers a ‘whole of market’ service.

Pros

• A broker’s advice will be tailored to your individual financial situation and needs and can therefore advise you on your suitability to all products.
• Can gain access to the whole of the mortgage market, meaning that they have a greater chance of finding that perfect mortgage for you.
• Have access to ‘broker only’ deals
• Do the searching for you and liaise with your chosen lender, which can save you huge amounts of time and stress.
• Expert in their field so could help you find the very latest deals and have in-depth knowledge of the habits and anomalies of different lenders.
  For example, if you are time-strapped, they may be able to tell you which lenders work quickest or if affordability is your main concern, brokers may know which lenders take certain expenditures into consideration during your affordability assessment (including school fees, childcare costs, commuting costs, pension contributions).

Cons

• Mortgage brokering is a business, and brokers may charge a fee for their services. This can be in the form of an hourly rate, a flat fee, a commission-based fee paid by the lender, or a combination of all three.
  Whichever way they charge, brokers are obliged to outline all fees in an initial disclosure document. If your broker is charging a fee and is paid a commission by the lender, it’s worth asking if they will offset some of their commission against the cost of your deal (you never know!)
• You may miss out on direct-only deals which could be cheaper than those offered via a broker. That said, a good broker may include these offers in any market assessment, but you will have to make the application directly.

When deciding on whether or not to use a mortgage broker, a balanced approach may be the best solution.

Do your own research online first, ask your current bank and other direct-only lenders what deals they have available and then speak to a reputable mortgage broker to see what else is available and suitable for your personal circumstances.

That way you’ll get the holistic advice and information you need in order to get the very best mortgage for you.

Edited by: Sarah Guershon

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Last updated: 8 May, 2019

What is a money market account?

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You are looking for a low-risk way to earn a competitive rate. Then, you stumble upon something promising: a money market account that pays a high yield. You have just one question: what in the world is a money market account?

A money market account is a financial tool for storing your savings safely, and it is quite similar to a traditional savings account. A money market account is great for when you want a low-risk way to earn a competitive rate on your cash.

Generally, a money market account pays a higher interest rate than a savings account; however, the account tends to include more restrictions, such as requiring a higher minimum balance. It wouldn’t be surprising for the financial institution to require $5,000 or more to open a money market account, for example.

You will, however, often have the ability to write checks from the account and/or a debit card to access your money. But a money market account is not a checking account, and there are limits on your ability to use these tools to move money in and out of the account. A money market account will allow up to six withdrawals or transfers a month because of a federal mandate.

Brick-and-mortar banks, online banks and credit unions offer the deposit account.

Are money market accounts FDIC-insured?

Your money is safe in a money market account if it’s offered by a bank or credit union.

At banks, the Federal Deposit Insurance Corp. insures up to $250,000. At credit unions, the National Credit Union Association insures up to $250,000.

Should the bank or credit union fail, the FDIC or NCUA guarantees your money will remain safe.

For money market accounts, banks and credit unions can use your deposits for low-risk investments, like certificates of deposit. But again, your money is still safe in these accounts.

How do I choose the best money market account?

First and foremost, shop around.

As you do your research, one of the most important factors to consider is the product’s annual percentage yield. The annual percentage yield, or APY, alerts you to how much you will earn with compound interest over the year. In other words, it’s the interest earned on your first deposit as well as the interest earned on top of other interest earnings — the higher the number is, the more your money will grow.

Next, look out for account restrictions. You’ll want to check to see whether or not the account requirements are too onerous to earn the yield or to sidestep a fee. It’s not uncommon to see hefty balance requirements. For example, BMO Harris Bank currently requires a $5,000 minimum opening deposit to earn 2.45 percent APY on its money market account.

Also, make sure you look for fees, including whether the account charges you a penalty if you close it within three months of opening it. Look out for monthly fees, transfer fees, shipping fees, inactive account fees and other penalties.

You can use Bankrate to compare money market accounts.

Should I open a money market account?

If you’re looking to earn a higher rate without taking on risk for your shorter-term goals, you should consider opening a money market account. For example, you may want to open a money market account if:

• You want relatively easy access to your savings.
• Need a place to park your emergency savings or another shorter-term financial goal.
• Want the ability to write a limited amount of checks.
• Desire a predictable APY and a federally insured account.

Can you lose money in a money market account?

A money market account is a safe place to park your money, so long as you aren’t depositing more than $250,000 — the amount FDIC-insured banks and NCUA-insured credit unions insure against losses — in a single account.

Importantly, a money market account is separate from a money market fund. The money market account is FDIC-insured; the money market fund is not.

What is a money market account good for?

If you want to park your savings somewhere but still have relatively easy access to it, a money market account is a good option to consider.

A money market account is a solid option to keep funds for your shorter-term savings goals, like a wedding or home repair. It’s also a good place to keep your emergency fund.

Are you taxed on money market accounts?

You must report all taxable and tax-exempt interest on your federal income tax return, even if it’s just a couple of dollars.

If you earn $10 on interest on an account, your bank will send you a 1099-INT for interest earned during that year. Even if you earn less than $10, you still need to report it on your tax return to the IRS. You will want to report the interest the year that you earn it.

Contact your accountant to answer your specific tax questions.

What is the difference between a money market account and a savings account?

Savings accounts and money market accounts have more in common than not: They pay interest, and they are designed to keep you saving. But there are a few distinctions that should help you choose the product that suits your needs best, including:

• Generally, you will have to park more money in a money market account than you will in a savings account.
• The money market account, on average, pays twice the savings account APY, according to Bankrate data (0.25 percent APY vs. 0.1 percent APY).
• With a money market account, you can get checks — don’t expect this tool in your savings account.

If you are deciding between a money market account and a certificate of deposit, evaluate your goals. A CD could pay you a more competitive rate than a money market account, but your money is more liquid in a money market account than a CD.

Remember, there are always exceptions. Some savings accounts pay higher yields than money market accounts, and not all money market accounts offer ATM access or check-writing privileges. Bottom line: Do your research and shop around to find the account that works best for you.

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