Buying property whether it’s a first home or an investment, taking out a home loan is the biggest financial commitment anyone ever makes.

Unless they buy a boat – which is simply a sign of complete madness and suggests investigation into a different kind of commitment.

The home loan journey is one that is taken lightly only by billionaires because they’ll never have to walk it. It’s complex, nonlinear and multifaceted. It’s demanding, heart-racing and tedious. Some don’t even make it to the end; it’s not an expedition for the faint hearted.

Unsurprisingly, for first home buyers without previous experience to call upon, it’s a distinctly different track that’s taken.

Milestones are evident. Choosing whether to take a direct loan with a lender, using a
broker, or many, many hours of involved research and ‘shopping around’. It’ not always easy to check the credibility of the person helping organise your loan.

Naturally when prospective buyers look for a home loan, they’re looking for the ‘best’ – a shorthand reference to only two things: the maximum borrowing amount they can get; and the interest rate attached.

Regardless of any and all available information, and easy access to it, the strongest influence of the loan decision-making process is the recommendation and advice of family and friends. Psychologically, it makes sense: it’s the place you go when you’re feeling unsure and vulnerable. For a first foray into the alien world of commerce and its requisite decades of unfaltering obligation, humans are by nature selfish, tribal, gullible convenience-seekers who will most certainly put the most trust in that which seems familiar.

When an enormous amount of money, and 25 years of your life is involved, nobody wants to be duped.

Fear of being caught or mislead by ‘the fine print’ is a major concern for those navigating the home loan process. Misinformation is not considered like a plumbing problem you can fix; like crime, it’s a social condition people feel must be constantly monitored and adjusted to. The continuous and exponential acceleration of the internet allows not only more people, but artificial intelligence to create and instantly spread manipulative narratives and believable anecdotes – you can check review sites for lenders, but many of them are just promotional websites who are not independently reviewing at all.  Social media increasingly encourages ‘echo chambers’ of those who think alike where those who don’t will be ‘unfriended’, and fake news and rumours will keep being passed on because it subscribes to their point of view. There is less credence in what is the mortgage lender’s mission statement and how many years have they been operational than what the opinion of a favourite ‘influencer’ might be.

 As Winston Churchill once said, and relevant now moreso than ever, “A lie can go around the world before the truth gets its pants on.”

Those being less convinced of the home loan that’s right for them, or keen to access a range of options without having to do the legwork themselves, are more likely to engage a broker. How the decision was reached on the loan they’d take varies, and is always heavily reliant on the confidence in money knowledge they already have.

Brokers are engaged for basically two reasons: belief in their expertise; or that they ‘do the work for you’. Generally the expectation is the same – that the broker will deliver the ‘best’ home loan for you, grounded in the awareness that the key difference between a broker and lender is the access to all lenders and loan options.

There are clear differences between those who go to a broker, and those who choose to go directly to a lender, and you can be certain the mortgage lenders will be checking you out.

Broker users tend to be younger by about two years, and with an income averaging $AU6,000 less than those who fall into the direct lender category. They’re more likely to be a first home buyer, they accept that they have less knowledge about the loan than they would like, and readily admit to having done less research. Typically, they are more uncertain of the course of action a home loan takes. They look for someone to not only bridge the gap in their knowledge, but who will support and advise them throughout the entire process.

The perception and understanding of how mortgage brokers are paid varies considerably; although most are aware that a broker is paid by the lender via a commission.

However, it’s often not clearly understood that brokers receive different commission rates, and that this in itself presents a conflict of interest. It’s not unusual for brokers to push a certain product not strictly in the best interest of their client or necessarily consistent with their objectives because the pay-off is greater.

Not surprisingly, the importance of finding a good rate decreases with the influence of convenience. Staying with the establishment they’re already with, along with home loan features like an offset account ultimately outweighs any savings. ‘Ease’ is the justification for forfeiting the greater amount that could be borrowed, or the reduction in repayments.

Overall, 60% of people take out a home loan with the financial institution they already have an existing relationship with; and most particularly those who go direct. Lendees through brokers are 20% less likely to take out their loan with their current bank or building society.

By far the strongest influence to stay with an existing relationship is convenience. Lenders already have all their financial information, people want to keep their finances and banking in one spot, and staying takes much less effort than switching.

Loyalty, however, is rarely rewarded.

There are consistent reports of disappointment in no recognition from the lending authority of the allegiance customers felt they’d shown. If a lower interest rate is wanted, it has to be asked for and is usually met with mixed results.

Startlingly, 1 in 10 recently having taken out a home loan and making repayments were struggling to meet their repayments or had missed at least one. 20% thought that they would have to change their spending habits a little, 50% thought ‘a lot’ before they took out the loan, but that’s a relatively high proportion of new home owners struggling under financial pressure within just the first twelve months.

In general, this whole, complicated process of securing a home loan results in the comparison of only a few offers. While most loan seekers appear to make decisions based on certain
criteria – the lowest interest rate, low or no fees, ability to have an offset
account – few actually systematically compare options, or quantify which to be the most cost-effective in the long run.

Not everyone who makes it through the home loan journey feels they got the loan with the ‘best’ interest rate. This is in stark contrast the way it starts, with an intrepid drive to find that elusive ‘low’ or ‘competitive’ interest rate. So arduous is getting to the end of it all that some struggle to even recall the rate of their new home loan.

So how much research is enough? Whenever it is you declare it to be.