What is a loan broker?
Answer
A professional helping arrange home loans
Explanation
A loan broker, more commonly called a mortgage broker in Australia, is a credit-licensed professional who arranges loans on behalf of borrowers. Brokers work between the borrower and a panel of lenders to find loan options that suit the borrower's needs, prepare and submit the application, and manage the process through to settlement.
Brokers in Australia are licensed under the National Consumer Credit Protection Act 2009 and regulated by the Australian Securities and Investments Commission. They must hold either an Australian Credit Licence or operate as an authorised credit representative under another licensee. Most are members of the Mortgage and Finance Association of Australia (MFAA) or the Finance Brokers Association of Australia, both of which require ongoing professional development and adherence to a code of conduct.
Brokers usually do not charge the borrower directly. Instead they receive an upfront commission of about 0.6 to 0.7 per cent of the loan amount and a trail commission of about 0.15 per cent per year from the lender. The Best Interests Duty for mortgage brokers, introduced by the Hayne Royal Commission reforms in 2021, requires brokers to act in the customer's best interests when recommending a loan. Brokers must compare options across their lender panel, explain why the recommended loan is suitable, and disclose any conflicts of interest.
About 75 per cent of new home loans in Australia are now arranged through brokers, according to MFAA data, up from about 50 per cent in 2014. The growth reflects both the complexity of comparing the dozens of lenders competing for home loans and the value of having a single contact manage the application process. Major broker aggregator groups include Australian Finance Group, Connective, Choice Aggregation Services, and Loan Market. Mortgage brokers can usually access loans from the four major banks (CBA, Westpac, NAB, ANZ), regional and online banks (Macquarie, ING, Bank of Queensland, Bendigo Bank), and non-bank lenders. Borrowers can lodge complaints about a broker with the Australian Financial Complaints Authority.
Why this matters for your test
Mortgage brokers arrange the majority of new home loans in Australia, and recognising the Best Interests Duty plus the lender-paid commission model helps new citizens use a broker effectively.
Source: Australian Citizenship: Our Common Bond (2024)
