Mortgage broker vs a bank in Singapore – Which is better for home loans?

A mortgage broker in Singapore are independent advisors which compare the home loan products from many different banks, and help their clients secure the cheapest interest rates.

Mortgage brokers are not tied to any one bank and are only incentivised to ensure that you get the best housing loan for your needs.

Going to the bank directly, would mean speaking to a mortgage staff which only works for one specific bank; they are obliged to promote only their employer’s loans. For example, a UOB banker cannot recommend that you go to DBS instead.

To put it simply, the power of negotiation and freedom of choice are major reasons why going to a mortgage broker instead of the bank directly is most of the time a better decision which allows you to get the best mortgage rates.

To make things really clear, the article breaks down:

• Differences between a mortgage broker and a bank
• Advantages of using a mortgage broker in Singapore
• Reasons why you shouldn’t use a mortgage broker
• Commissions for a mortgage broker

What is the difference between using a mortgage broker compared to going to a bank directly?

Getting a mortgage through a broker or a banker has some differences and being aware of them helps to make your home loan financing journey much smoother.

Here are the main areas where a mortgage broker might have an edge over a mortgage banker in Singapore:

Level of experience and knowledge

Mortgage brokers have an online presence where the knowledge and level of advisory provided can be easily validated through customer reviews and online publications through various social media sources. This way, you can be assured of how experienced a particular broker is and if the advice provided is reliable.

Going to a bank directly more often than not means having a mortgage banker assigned on a random basis and you have no concrete way of finding out the level of professionalism or mortgage related expertise that the individual has.

Motivation in earnings

Mortgage bankers since employed by a specific bank, have a basic salary as well as commissions paid. The amount of commissions are mainly dependent upon the interest rates being offered and features provided within the housing loan package.

That means, in order for a mortgage bankers to maximise commissions on a single client, they might not want to go through the hassle of appealing for the lowest interest rate package that can be offered.

Also, there might be hesitation in providing you with a wide array of special features for your mortgage since you might not use them anyway and it leads to a decrease in their commissions.

A mortgage broker on the other hand, makes their income solely from fixed fees dependent on the mortgage loan amount.

Since these fees are based on a percentage of the loan amount and not the interest rates or features, they would want to ensure that you only get the best home loan deal with the lowest interest rates and flexibility.

Building a deeper relationship

Like any business, an independent mortgage firm has to maximise all revenue sources apart from just mortgages alone. They do not have the size, or financial resources and will almost never be able to generate as much profits just from mortgages alone like a bank is able to.

For that reason, mortgage brokers will want to ensure that any form of advisory offered for home loans is trustworthy and as insightful as possible.

This creates a deeper and stronger relationship with a client which then opens the conversation to more financial products such as insurance or investments that the broker is able to earn from.

Mortgage bankers on the other hand are hired to only focus on selling mortgage products for a specific bank. It is more transactional in nature – “closed deal and on to the next”.

Key advantages of using a mortgage broker in Singapore:

1. Cheaper home loan rates than going to the bank directly

Mortgage brokers have a more direct relationship with the banks than members of the general public do. In some cases, they may have been former mortgage bankers themselves, with many years in the industry.

Due to this direct relationship, mortgage brokers can obtain better home loan rates than would be available to the public.

Also, a mortgage broker is at times able to request for preferential rates which are not publicly advertised by banks in Singapore due to the volume of business they may have already generated for the bank.

After all, in Singapore, there can be as many as 50+ home loan packages available at any point in time. Out of all these, only a handful—often two or three banks—will offer the lowest preferential interest rates.

Keep in mind that banks often take turns in offering the most attractive interest rates on a monthly or quarterly basis to gain market share. Therefore, knowing when such exclusive rates are offered and by which banks is where a mortgage broker truly adds value.

If you were to go the banks directly, trying to find the best home loan for your needs can be extremely time consuming and confusing due to the various interest rates and packages available to choose from.

Mortgage brokers can therefore make mortgage “shopping” easy, fast, and convenient.

If you still prefer to do the legwork on your own, it would be a good idea to refer to a guide for mortgage home loans in Singapore for reference.

2. Unbiased advice on your mortgage needs

Since mortgage brokers are not tied down to any one bank, they will not attempt to sell you packages from just one bank that they represent.

However, if you speak to a bank or their mortgage bankers directly, you might find them offering the supposedly “best” package in the current market—which of course, will be among the loans offered by their own bank.

In this regard, it may be difficult to determine whether the mortgage banker truly has your best interests in mind or if they are simply trying to close a deal.

Ultimately, a mortgage broker’s goal is to help you finance your property or home successfully, and they do this first and foremost by getting to know you.

Only after learning more about your expectations and goals can a mortgage broker be able to make a proper recommendation based on the existing available home loan options that match your personal needs.

3. Speeding up your home loan application

A common hazard of any major loan, such as a home loan, is the extensive amount of paperwork involved.

An experienced mortgage consultant in Singapore can sift through the paperwork to provide the most relevant details, thus speeding up your loan application process.

For example, salaried workers do not need to fill out as many forms as self-employed borrowers. A home loans specialist will identify the specific documents needed by each client, and bypass the rest.

This also spares the bank’s mortgage department from a deluge of unnecessary paperwork, thus speeding up loan application.

Mortgage brokers can also identify common red flags, such as if you fail to meet the total debt servicing ratio (TDSR) requirements of 60 percent and offer tips on how to not let TDSR affect your home loan.

4. Advising you on different home loan features and types

Some home loans have features that can be advantageous to you.

For example, many borrowers assume that a lock-in feature—a penalty for refinancing your home loan—is bad. However, a lock-in might also mean lower rates, and the drawback is irrelevant if you’re not planning to refinance for many years anyway.

Some home loans may include free repricing features that let you switch to another loan package within the same bank at no cost.

Banks are constantly innovating, and a mortgage broker can explain how these features are beneficial based on your situation.

Mortgage brokers can also help you pick loans based on longer-term views. For example, in a rising interest rate environment, they might recommend a fixed deposit (FHR) loan over a more volatile SIBOR loan.

The details are too lengthy to explain here, but a home loan broker will gladly walk you through the loan types to help you find the best housing loan in Singapore.

Tips: How To Choose A Home Loan Interest Rate in Singapore

5. Delivering advice on home loan refinancing

Even if you already took your home loan many years ago, a mortgage broker is still essential. For example, you may feel that your monthly repayments are becoming excessive, and there may be much cheaper loans on the market.

A mortgage broker can help you to refinance (switch from one bank’s loan to another), thus lowering your monthly repayments.

There is, however, a cost to refinancing—typically at least $2,500 to $3,000 for legal fees. There is also a risk of switching to a worse package, which ends up costing more than your current package in the long run.

A mortgage broker can help you work out if you should refinance, negotiate for a full offset of your costs and plan for when is the best time to refinance. They will also help with the paperwork required.

Tips: 8 Tricks For Refinancing

6. Helping to find a reliable conveyancing law firm

A law firm is engaged in any property transaction. The lawyer’s job is to check through the various deeds and documents, from the Sale & Purchase Agreement to the background of the seller (e.g. if the seller is facing bankruptcy and this could affect the property transaction).

A mortgage broker can help you find a reputable conveyancing law firm at a fair price (the amount can range from $2,500 to over $4,000, depending on who you engage). They have first-hand experience in dealing with the various firms, and will know which ones are reliable.

Note that a shoddy law firm can cause financially significant delays if they make errors on your mortgage paperwork.

7. Advising you on property valuation issues

The Loan to Value (LTV) ratio determines how much a bank can loan you for your house.

The LTV is a complex calculation, impacted by your age, loan tenure, credit history, number of outstanding property loans, and other factors.

Home loan brokers can provide advice on how you can get a higher LTV ratio (although this is never guaranteed).

Likewise, they can help if the bank gives the property a valuation that you are not happy with—they can approach different banks using different valuers, for example.

There are also reasons why you shouldn’t use a mortgage broker

Mortgage brokers earn their fees only when you take a new home loan from a bank.

Therefore, if you already have a mortgage and would like to stick to your existing bank but change your interest rate package (commonly known as repricing), there isn’t any financial gain for the broker.

With no prospect of earning any income, chances are a mortgage broker might be tempted to sway you over to a different bank for a refinancing which just leads down a slippery slope.

(Ps. This is not a norm neither a practice we nor any other broker endorses within the mortgage industry in Singapore – just providing a hypothetical situation.)

If you are looking to lower the interest rate on your existing mortgage, it would be best to first request for a repricing offer from your bank before approaching a mortgage broker to consider refinancing.

Do I need to pay a fee for using a mortgage broker in Singapore?

Your home loan broker will be paid by the bank; there’s no monetary cost or fees that need to be paid by you.

Also, all banks pay fixed commissions to a mortgage broker, so your home loan broker is not inclined to favour one over another.

In addition, some home loan brokers – like DollarBack Mortgage, are able to offer more exclusive rewards to you, just because they don’t face the high operating costs of a bank.

As a home mortgage loan broker is both free and essential (given that a mortgage is probably the biggest loan you’ll ever take), there’s simply no reason not to use one, given the advantages you stand to gain. 

DollarBack Mortgage is an independent mortgage broker in Singapore and provides a home loan comparison between 145 mortgage packages in the market.

Our home loan brokers recommend the best housing loan package through our network of over 18 major banks in Singapore.

Compare the cheapest home loan rates in Singapore and enjoy cash rewards!