Pros and Cons of Starting a Mortgage Broking Business

Pros and Cons of Starting a Mortgage Broking Business

Posted on November 23, 2013 by Michael Martin Leaño

Interested in setting up your own mortgage broking firm? Like any line of work, you need to get a better grasp of how the industry works before you decide to jump in. Here’s what you need to know about the pros and cons of running a mortgage broking business.

The Pros

Below are the reasons why you want to get into mortgage broking in the first place:

Pro #1: You set your own hours
One of the biggest advantages of having your own mortgage broking business is the ability to choose when you want to work. Want to work only on weekdays? Done. You’d rather start at 9am or 10am? Not a problem. You can even opt to see clients in the evening, as long as they’re agreeable to it. The key word here is flexibility.

Pro #2: The residual income
Running a mortgage broking business sets you up for residual income, which comes from trail commissions from past clients. The amount would depend on how many loans you’ve closed but if you work hard enough, you can stop working and still earn a few thousand dollars per month. Take note, however, that the residual income won’t continue indefinitely. When your clients switch lenders or refinance, you lose the trail commission.

Pro #3: You can choose your clients
Regardless of profession, dealing with clients can sometimes be challenging. Many are terrific, but some are just plain difficult to work with. As a mortgage broker, you can choose who you want to work with. Granted, this may partly limit your earning opportunities, but what’s important here is that you have that option.

Pro #4: There’s no need to visit clients
Once you’ve gotten used to running the business, you can opt to hold off visiting clients until they need to sign paperwork for their loans. If you need to gather basic client information, you can use the phone instead. To get your clients’ requirements, you can ask them to e-mail the documents to you. This makes your work easier and allows you to be even more productive since you can attend to more clients. Remember, however, that you should give clients the option to meet up for their convenience as well.

Pro #5: You control the size of your business
Your mortgage broking business can be a small outfit with a home-based office, or it could have a fleet of agents catering to a staggering number of clients–it’s up to you. You can make your company as small or as large as you want.

The Cons

However, running a mortgage broking business isn’t a cakewalk either. It also comes with a few negatives:

Con #1: You’ll have to work really hard to make money
Mortgage broking is hard work. Like any business, you don’t earn much at first. The initial difficulty comes mainly from not having enough leads and not knowing the right approach when dealing with lenders. To make sufficient income during this period, you’ll have to work your tail off, put in nauseatingly long hours, and miss out on weekends. Fortunately, things can get better after the first year.

Con #2: The amount of paperwork can be overwhelming
You’ll be shocked with the amount of paperwork you have to sort out. The accreditation for each lender alone will require copious form-filling, legwork, and filing. You’ll also have to accomplish a mind-boggling amount of requirements like professional indemnity insurance, a tax file number for your business, registration as an Australian company, and a licence to run a mortgage broking business. If you plan to hire employees, you’ll have to deal with see to even more paperwork.

Con #3: Lenders have reduced upfront and trail commissions
Things have been a bit tight in the industry since the global financial crisis, with institutions cutting back on commissions to mortgage brokers as many borrowers fail to settle their debts. That said, things are looking up. Housing loan commitments are predicted to rebound, thanks to the more stable cash rate, intense competition between lenders, increasing rents, and several other factors.

Con #4: Some lenders don’t deal with all brokers
Adding to the challenge of having a mortgage broking business is the decision of some lenders to not deal with all mortgage brokers. Because of this, negotiating for better rates and commissions can sometimes be problematic, especially if you’re doing your business by yourself. The worst part? If you switch wholesalers, you can lose your residual income. This is why you should research first before signing up with a wholesaler.