Navigating the mortgage maze can be overwhelming at the best of times. A mortgage broker can ease the burden of shopping around, helping you uncover the best deal with minimal hassle.
First homebuyer Dan Meyers, a production manager for an advertising agency in Sydney, fell into homeownership by chance.
In early 2008, Dan’s parents decided to sell their four-bedroom property at Wattle
Grove, near Holsworthy and Liverpool in Sydney’s outer west. Instead of putting the property on the market, they decided to offer it to Dan for a discounted price of $300,000, as a gift towards his first home.
“The discount they gave me was very large as the property is actually valued at $450,000. This offer was too good to refuse,” explains Dan.
Dan didn’t waste any time accepting the offer and quickly asked friends and family for recommendations of some good mortgage brokers to help him organise his finance.
“A friend of mine recommended Mortgage Choice mortgage brokers as she had recently used their services to buy her first home. I didn’t seek any other advice before contacting them because I trusted my friend’s recommendation,” explains Dan.
Dan says the biggest advantage of having a good mortgage broker is that he did all of the running around and even visited his home to arrange the finance.
“He turned up on my doorstep with all the information I needed and made the process of getting a home loan simple and easy. Also, not having to deal with the lender directly was a relief,” he explains.
Dan says his mortgage broker took all of the stress out of finding a home loan, but in hindsight there were a few elements that went unexplained by his broker. “I didn’t do any research on the exit costs for my home loan if I were to get out of it within the first five years, and my broker didn’t bring this to my attention either. I have a long-term plan for this house, so this does not worry me, although at the end of the day there are always more questions that you could have asked,” explains Dan.
“My broker could have been more forthcoming with information, knowledge and direction, which is why you should ask a lot of questions. I wish I had been more proactive in learning more about home loans. If I had I would no doubt have known more about what was going on between the broker and lender throughout the exchange and I wouldn’t have felt left in the dark. Don’t let ignorance be your down fall.”
Dan says borrowers should not only consider doing research on the lender of their final choice, but also conduct research into their broker to make sure they are informed enough for your individual home loan request.
“Ask friends and family, and read up on as much as you can so that you can question your broker and see if they know their stuff. The more you know the less chance there is of any confusion or misunderstanding, which could be costly once the home loan has gone through,” he says.
“Your broker must be knowledgeable, giving advice non-stop, and provide constant contact throughout the process. A good broker should be knocking on your door and then following it all the way through to the signing of the mortgage, as well as advising when and how to set up accounts with your lender.”
Dan is now settled in his new home and plans to take advantage of recent rate cuts by making additional payments on his home loan.
“I have developed a strategy to now pay off as much as possible off my home loan in order to get ahead. Essentially my goal is to buy a home in Balmain (in Sydney’s inner west). I will keep this house for 12 months, knock it down, build duplexes, and then sell them and be able to afford a home over $800,000 on my own wage in Balmain,” explains Dan.
“The house is only a 10-minute walk away from the train station and one street from the local school, and whenever new homes come up for sale here, they sell straight away. So I believe my goal is certainly achievable.”
Background on brokers
Brokers have access to a range of products through a panel of lenders they are accredited with and they act as go-betweens between lenders and borrowers. Their main goal should be to find the most suitable deal for you using the information you provide.
Stewart Nobel, senior franchise principal from Australian Mortgage Brokers says it’s essential for a broker to ask the right questions and determine a clients’ future goals for their home loan in order to provide a lending solution that will suit the client for the long term.
“Getting the right solution upfront for a client that will cater for future plans or lifestyle changes could save that client thousands of dollars,” says Noble.
“Why should they need to change their loan in a few year’ time due to a short sighted recommendation from a broker who failed to ask the right questions?”
A broker shouldn’t receive any extra commissions by recommending particular loans. In order to make certain of this, your broker should provide you with a ‘Finance Broking Agreement’ [this may vary from state to state] at some time in the initial interviewing process.
The ‘Finance Broking Agreement’ has to be presented to the borrower before they sign the home loan application. It outlines the expectations of the broker and the client in regards to the home loan they’re applying for. It’s not a commitment that the loan will be approved or that the client should only use that broker, but it does have other clauses and will have Privacy Act clauses as well.
Sizing up your broker
The stiff competition to win your business means you can take your time to shop around for the right broker. Ask your friends and colleagues if they know of someone who has had a good experience with their broker. Meeting this broker face-to-face will help you decide whether you can work with him or her in the long term.
Or you can speak with a few brokers to size up the broker market. Find out how long they’ve been in the industry, which lenders are on their panel and the types of loans they’re offering.
Choosing the wrong mortgage broker could be costly but choosing the right one could help put the right loan product in your hands. To help you make this decision, your broker should have several years’ experience in the mortgage industry and be suitably qualified.
Your broker should have a Certificate IV and preferably a Diploma In Financial Services Mortgage Broking, be a member of the Mortgage & Finance Association of Australia (MFAA) and be a member of Credit Ombudsman Service Ltd (COSL),
an avenue for borrowers to source independent dispute resolution help.
The broker you choose should find the loan that best suits your needs, not the other way around.
Look for a broker who is up to date with industry knowledge and make sure they can adhere to strict deadlines. Test the waters with the broker, ensuring they are punctual and well organised, and that they give you confidence in their decision-making and problemsolving capabilities.
“A good mortgage broker has good product knowledge, good people skills, patience and the confidence to discuss lenders and products without full reliance on computer software,” says Noble.
“If your broker does not appear 100% confident in the information he/she provides then that is a pretty clear indication they lack experience.”
Who’s on their lending panel?
You can tell a lot about a broker by their lending panel. Check if they have a range of reputable institutions. If not, you could be missing out on better mortgage deals. Make sure your broker can explain to you how many lenders they have on their panel and how many of those lenders they use, and why. Make sure a broker uses the lenders on their panel for the right reasons. If they use certain lenders for most of their clients, ask why the products suited those customers.
You need to be sure that the product your broker is offering matches your needs as a borrower. Know why they’re offering a lender from their panel and know what they offering. It isn’t necessarily the bigger lending panels that mean the better the service. All in all, it comes down to the borrower’s needs, and knowing what they want and the broker being able to match that.
Ask for an explanation of all the documentation surrounding your loan application and contract. Many borrowers aren’t clearly informed as to which lender their broker has used, let alone what the interest rate or features of the loan product are.
Ask for a loan product facts sheet. Having in writing what the broker has offered will ensure there are no nasty surprises later.
Ensure that you are given a hard copy of the comparison rate table of the home loans you are considering. A comparison rate factors in the interest rate plus all costs you will incur with that loan, other than any exit fees. This can help you determine which home loan might work best for you financially.
Take the lead
Don’t let the broker do all the talking. Make sure you ask plenty of questions about what’s on offer. Ask the broker to come up with the best product for the sort of loan you want.
Don’t hesitate to ask your broker to explain everything in simple terms, particularly if it’s your first time taking out a loan. A good broker should be able to explain and clarify the financial terms and issues in ways that you understand.
Ideally, the broker should have ready access to an extensive range of lenders, with a mix of both traditional (banks, building societies and credit unions) and non-traditional (wholesale or non-conforming) lenders. Some brokers don’t always compare a wide range of suitable loan products, so it’s best to ask your broker which products they’ll be comparing and from which lenders.
A primary concern will be the broker’s experience and expertise. Don’t be afraid to ask questions regarding how long they’ve been in the industry. Ask to read testimonials from previous clients. This allows an insight into their relationships with borrowers.
The industry is self regulated in most states but a new regulation package, set to place mortgage brokers under a far more rigorous regime, is on its way. The MFAA has welcomed the draft legislation for a comprehensive scheme of regulating the broking industry – the exposure bill for National Finance Broking legislation, released by Linda Burney, NSW minister for fair trading in November 2007.
Phil Naylor, CEO of the MFAA, says the association has been lobbying regulators for national legislation since 2002: “We’ve worked closely with the regulators in all states and territories to formulate a piece of legislation which both protects consumers, giving them confidence in dealing with mortgage and finance brokers, as well as being fair to the industry in terms of compliance.”
Make sure your broker is an Accredited Mortgage Consultant (AMC) or a Certified Mortgage Consultant (CMC) – these are the two levels of accreditation used by the MFAA to show that a broker is approved and accredited. The Certificate IV in Financial Services is the key qualification to watch for, as a broker can’t become an AMC without it (unless they can satisfy experience criteria).
Additionally, all MFAA members are required to be members of COSL or another external disputes scheme approved by the Australian Securities & Investments Commission (ASIC).
Fees and charges
Most brokers render their services free to consumers and are paid a commission by the credit providers. If fees are charged, these may be payable upfront or upon completion of the service (upfront fees aren’t allowed in the ACT, NSW, Victoria or Western Australia).
Ask your broker what commissions or benefits they receive. If they do charge a direct fee, is it a fair and reasonable amount for the service provided? In NSW and Victoria, brokers must disclose the commission paid to them by lenders, and all MFAA-accredited brokers must also disclose these payments to their clients as part of the finance broking contract.
Please note that if a broker secures you a loan that adheres to all the requirements set out in the agreement you have with the broker and you decide not to accept it, you’ll probably have to pay the broker’s fee regardless.
The criteria of independence, integrity and reliability are most important. If a person you’re dealing with fulfils these criteria, then follow your instincts. A broker’s reputation and past performance are also indicators of their worth.
It can be confusing to know whether to get a variable rate or fixed rate mortgage, and what features are important. That's why it's important to not only check the right rates, but make sure that you're getting the right features in your home loan. Get help choosing the right home loan