Mortgage Broker vs Bank — Which Should You Use?

Mortgage Broker vs Bank — Which Should You Use?

Most New Zealanders pick a lender the way they pick a supermarket — whichever one they already bank with. That instinct costs money. The gap between the best and worst advertised one-year rate across the major banks we track sat at roughly 4.99% to 5.85% on 16 September 2026, and that spread is before you get to cashbacks, low equity margins or how a lender treats self-employed income.

The broker-versus-bank question is really a question about who does the shopping and who pays for it. A broker is usually paid by the lender, not by you. A bank's home loan manager is paid by the bank, and can only sell you that bank's products. Neither arrangement is automatically better — but knowing who is paying whom changes how you read the advice you get.

What surprised us most while putting this together is how much of the real cost sits outside the advertised rate. Cashback clawbacks, break fees, low equity margins and the 1.2% Lender's Mortgage Insurance premium on a Kāinga Ora First Home Loan all move the number. A broker who explains those properly is worth more than one who simply quotes a rate.

How We Researched This Guide

We built this from primary sources rather than lender marketing. The lending rules came from the Reserve Bank's LVR and DTI pages, including its 14 August 2026 decision to maintain the current settings. The First Home Loan terms came from Kāinga Ora's page and its May 2026 brochure. The tax side — bright-line, interest deductibility, ring-fencing — came from Inland Revenue guidance, with the statutory detail set out in full on legislation.govt.nz for anyone who wants the sections themselves.

The broker pay figures came from the FMA's mortgage advice guidance and from published disclosure statements, which is where things got interesting. Upfront commission clustered around 0.55% to 0.90% of the loan, but one firm disclosed a clawback recovery fee capped at the lower of the actual clawback or 0.50% of the balance repaid. That is a real number with real consequences, and it is not something you will see on a rate table.

The Quick Summary (60-Second Version)

If you only read one part of this page, read this.

• A broker usually costs you nothing upfront for a standard home loan, because the lender pays them — but commission rates vary between lenders, and the FMA says that can influence recommendations.
• Going direct gives you one lender's products only. That is fine if you already know which bank you want, and expensive if you don't.
• Brokers genuinely help with self-employed income, low deposits, and Kāinga Ora First Home Loan eligibility, which needs only a 5% deposit.
• Cashbacks of roughly 0.5% to 1% of the loan come with clawback periods commonly running two to four years.
• Break fees on a fixed loan are largest when rates have fallen since you fixed — the opposite of what most people assume.
• Ask any broker, in writing, how they are paid and whether a clawback fee could ever land on you.

How Brokers and Banks Actually Get Paid

This is the part that determines everything else. The FMA states plainly that most mortgage advisers work on commission: a payment from the lender as a percentage of the loan when it is drawn down, and often an ongoing trail commission while you hold the loan. Published disclosure statements put upfront commission at roughly 0.55% to 0.90% of the loan value, with trail at 0% to about 0.15% of the remaining balance each year.

The FMA also says commissions can vary across lenders and that this could influence which loans get recommended. Advisers must prioritise your interests over their own, and they must disclose how they are paid and when a fee would fall on you. That disclosure duty is the thing to actually use. Ask for it before you hand over documents.

Bank staff sit on the other side of the same coin. They are employed by one lender, so their product range is that lender's range. There is no commission conflict in the broker sense, but there is no comparison either. A bank lender cannot tell you that a competitor would price your situation better.

What the fees look like in practice

For a standard residential home loan, the borrower usually pays the broker nothing. Sometimes an adviser charges a fee directly instead of, or as well as, the lender's commission. Where that bites hardest is clawback: if your loan ends or moves to another lender within a set period, the lender can recoup commission from the adviser, and the adviser may then charge you. The FMA requires advisers to tell you up front about situations where a clawback fee applies.

The Costs Nobody Puts on the Rate Table

Advertised rates are the headline, not the bill. Three charges do most of the damage, and all three are knowable in advance if you ask the right question.

Low equity margins

Borrow more than 80% of a property's value and a low equity margin may apply. One major bank describes it on its own help pages as a percentage added to your rate, typically between 0.25% and 1.5% per annum. On a $600,000 loan, a 0.75% margin costs about $4,500 a year in extra interest. That is not a rounding error.

Some lenders don't label a margin at all and instead price low-deposit lending through a higher standard rate. Others charge a one-off low equity premium instead of an ongoing margin. The margin is also not automatically removed — lenders generally want evidence your equity has reached their threshold, through repayments, a valuation, or both. This pricing exists because owner-occupier lending above 80% LVR is classified as high-LVR, and the Reserve Bank allows only 25% of a bank's new owner-occupier lending above that line.

One exception worth knowing: a Kāinga Ora First Home Loan is priced differently. Lenders generally don't apply a low equity margin to it because Kāinga Ora underwrites the loan, and instead you pay a 1.2% LMI premium plus any application fee. On a 5% deposit, that trade-off is usually worth running the numbers on.

Break fees

If you repay a fixed-rate loan before the fixed term ends, you may be charged an early repayment cost. Under the Credit Contracts and Consumer Finance Act the charge must be a reasonable estimate of the lender's actual cost. Broadly, the lender loses money when rates at the time of repayment are lower than your fixed rate, because it can't re-lend those funds at the same rate.

So the direction matters. If rates have fallen since you fixed, the break fee can be large. If rates have risen, it is typically zero or negligible. Many borrowers assume the opposite. You cannot calculate it yourself — the inputs and formulas vary by lender and aren't published. Ask for a quote, and note that quotes are usually valid only a few days.

Cashbacks and clawbacks

Questions You Might Have

Is a broker really free?

For a standard home loan, usually yes — the lender pays them. But "free" describes your invoice, not the arrangement. Commission varies by lender, and if you leave early the adviser may face a clawback and pass a fee to you. Ask for the disclosure statement in writing before you commit.

Can a broker get me a better rate than going direct?

Sometimes, and mostly through lender access rather than magic. On 16 September 2026 our rate table showed one-year medians across all tracked lenders at 5.15%, with major bank advertised specials running roughly 4.99% to 5.85%. Rates move daily. What a broker adds is knowing which lender prices your particular situation best.

Should I use a broker if I'm self-employed?

Generally yes. Lenders assess self-employed income differently, and some are far more flexible than others about how they read your financials. A broker who regularly places self-employed lending will know which lenders to approach and how to present the application. Going direct means guessing.

What if I have a low deposit?

A broker can assess Kāinga Ora First Home Loan eligibility at no cost to you, because the lender pays the broker. That loan needs only a 5% deposit, has no house price cap, and uses income caps based on what you earned over the previous 12 months before tax. It is worth checking before you assume you need 20%.

Do I still need a lawyer?

You need someone qualified to transfer title, and in New Zealand that can be a lawyer or a licensed conveyancing practitioner — both are qualified. The real difference is scope, not competence. A lawyer can also advise on trusts, relationship property and unusual titles. Engage them before you sign anything binding.

What Matters Most

The broker-versus-bank choice matters far less than what you do with either. The rate is one line in a much longer document. Clawback periods, low equity margins, break fees and the lender's appetite for your specific income shape the actual cost over the years you'll hold the loan.

Our honest read: use a broker for the shopping, and use a bank's direct offer as the benchmark you measure it against. Ask both the same questions — how are you paid, what does this cost over the full fixed term, and what happens if I leave early. The answers will tell you more than the rate ever will.