Using a Mortgage Broker makes good sense. They are experts who arrange home loans day in and day out and their primary function is to match clients to loans that best suit their needs.
Acting as a go-between with banks or other lenders to arrange a home loan, the broker will deal with the lender and manage your application process through to approval.
Why not just go to a bank?
Which bank? Which product? With so many banks, it can be overwhelming. It’s an ever-changing market that can make it time consuming and tricky to personally navigate.
A mortgage broker can assist you in finding the loan that best suits your needs and not the need of just one particular bank.
They know lenders, their products, and are up-to-date with any changes to lender policies and products. Brokers help you choose what’s right for you and may be able to offer loans and rates that a traditional bank cannot.
Always ensure a broker has a license to give you credit (loan) advice before meeting. Look for a broker who holds an Australian Credit Licence or Credit Representative status, as required by the Australian Securities and Investments Commission (ASIC). Ask if your broker is a member of the industry body – the Mortgage and Finance Association of Australia (MFAA).
You can search the following three lists on ASIC Connects Professional Registers:
- Credit Registered Person
- Credit Representative
- Credit Licensee
A good broker works to:
- Understand your needs and goals
- Ascertain what you can afford to borrow
- Find suitable options
- Explain how each loan works and the costs (e.g., interest rate, features, fees)
- Apply for a loan and manages the process through to settlement
Key questions to ask your Mortgage Broker
- Do you offer loans from a range of different lenders?
- How do you get paid? Does this differ between lenders?
- What information must I provide for the loan application?
- Why did you recommend this loan to me?
- What fees will I have to pay for this loan?
- What features (options) come with this loan? Can you show me how they work?
- Can you show me a few more options, including one with the lowest cost?
- What is the threshold for lender’s mortgage insurance (LMI) and how can I avoid it?
How do I decide which loan is best suited to me?
Asking this will help you gain insight into the broker’s thinking. If they explain that their recommendations would depend on a number of factors, suggests they are prudent and diligent. A hurried response, providing one or two specific options, without stating the need for further information, suggests otherwise.
What is their experience?
Find out how many years they have been working and how many loans they have successfully written during that time. This will give you insight into their experience.
How will the lenders pay you?
If the broker is a member of the Mortgage and Finance Association of Australia (MFAA), they are required to disclose this information under the MFAA Code of Practice. Knowing this information will provide a valuable insight into the service they may provide you.
How many lenders are on your panel?
The more lenders a broker works with, the more options they have available to select from. Ask if there are certain lenders they don’t work with and why?
How much should I borrow?
Staying within your budget will help avoid mortgage stress, so always ask your broker to differentiate between what you can borrow and what you should borrow.
Remember, be clear about your finances. Highlight any outstanding debt or ongoing monetary commitments, such as credit card limits, as this will impact on your borrowing capacity.
What fees will I incur for a home loan?
Ask the broker whether they charge a customer fee, ask about the lender’s charges and request a detailed breakdown of all the potential costs – from application fees to lenders mortgage insurance.
Most brokers are paid by the lender, not the borrower, so always clarify if they charge a fee and if so, ask why.
What information do I need to provide to obtain finance?
Ask your broker for a printed checklist of documents required and mark off as you secure each item. Get them to explain the steps required to secure a loan.
Why is this loan right for me and what are its features?
Ask if the loan is a fixed-rate or variable-rate loan and whether it comes with offset account and redraw facilities, and if it allows you to make additional repayments. Get your broker to break down the benefits of features to you.
Can I choose to fix my interest rate later?
Circumstances may change, so having the flexibility to change from one loan type to another is beneficial. Ask your broker whether your lender will allow this, and if so, do charges apply?
Some final tips:
- Get feedback from friends and family who have used a broker: What was the experience like? Would they do it again? Ask the broker if you can contact some clients for testimonials.
- Research: Research loan products yourself for a better understanding and ask tough questions of your broker including what is their commission rate.
- Get a written quote/agreement from the broker: Be comfortable with what you’re agreeing to.
It should detail:
- The type of loan
- The loan amount
- The loan term (duration)
- How the loan works
- What features are included
- The interest rate
- Fees you have to pay (for example, broker’s fee, loan application fee, ongoing fees) and any upfront, ongoing or penalty fees that may apply
If unsure, ask more questions.
Don’t rush: Never sign blank forms or leave details for the broker to fill in later. Don’t ever feel pressured into signing. Ask for more time to make a decision, or find another broker.
Acknowledgements: Realestate.com.au, Mortgage Choice, AFG, Moneysmart.gov.au, Home Loan Experts, Mortgage House