After four years surrounded by the tropics of Thailand, Toby Wilcock and his wife Becky Love decided it was time to move back to Australia to be closer to their families.
In May 2008, the couple and their two-year-old daughter, Charlie, moved into a rented apartment in Waterloo, Sydney and began their hunt for a home.
"We knew the market was tough and there were a lot of first homebuyers out there, so we thought it best to go to a mortgage broker early and get everything approved before we found a home we wanted to buy," says Toby. "There are hundreds of mortgages out there and we wanted someone with expertise who could talk us through it."
A friend recommended Mortgage Choice in nearby Surry Hills, and after a meeting with one of their brokers, Georgina Perkins, the couple signed up straight away. "We just popped in for a chat and she was great," says Toby. "She has a young family too and understood our needs. As the lender pays Mortgage Choice, we didn’t need to worry about paying a fee up front."
Toby and Becky wanted to make the most of the First Home Owners Grant before it reduced and were planning on having a second child, so a quick purchase was essential. "We decided we would look at our purchase with both investor and occupier hats on," says Toby. "We wanted a home that we could live in for the next couple of years and then rent it out once the children are older."
The couple looked at over 40 homes in Redfern, Randwick and Bondi but their break came in September this year – a lot closer to home than they imagined. "We decided to look in a block that we had lived in before we went overseas, 200 metres from the current apartment," says Toby. "We walked in and thought ‘yes, this is it’ and then rang Georgina straight away!"
The couple settled on $500,000 for the two-bedroom apartment and it was then that Mortgage Choice stepped in. "Because we had already selected a property and we had savings for a 22% deposit, we were fast tracked," says Toby. "We got approval within three days."
The family moved into their new home three weeks after they first looked at it, initially as rental tenants and then owner occupiers once they settled one month later. "It has been an incredibly smooth purchase," says Toby. "They had our best interests at heart and there was no pressure."
The first encounter
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. 'Don't simply ask how many lenders the broker can use. Ask how many lenders they actually do use.
Find a broker who is up-to-date with their lending knowledge, knows about the latest home loan products available and who also has the confidence to explain them to you as well as to use them," says Warren Freeman, director of Cosimfree Homeloans. "Ascertain how many different lenders your broker used in the last three months. Your broker should find the loan that fits your needs, not make you fit the loans they are offering. Too many brokers advertise lots of lenders but just don't use them."
Don't let the broker do all of 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.
Brokers need to be able to meet deadlines, according to Freeman. Make sure you find a broker who is punctual, well organised and gives you confidence that they will carry out their work for you promptly.
Ask to look over the documentation the broker will leave with you. Freeman notes that many customers are not clearly informed about which lender their broker has used – let alone the interest rate or loan product. Ask for a loan product facts sheet. Having in writing what the broker has offered will ensure there are no nasty surprises later.
"This document protects the customer from broken promises and provides full transparency. It even shows what each lender is paying the broker, so you know the lender they suggest is chosen in your best interests, not theirs," says Freeman.
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 help. 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 can be costly, but choosing the right one could help you pick the right product for you. To help you make this decision, your broker should have several years experience in the mortgage industry and be properly qualified.
Your broker should have a certificate IV and preferably a Diploma In Financial Services Mortgage Broking; be a member of Mortgage & Finance Association of Australia (MFAA); and be a member of Credit Ombudsman Service Ltd (COSL) which is 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 problem-solving 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 Stewart Nobel, senior franchise principal from Australian Mortgage Brokers.
"If your broker does not appear 100% confident about the information they provide, then that is a pretty clear indication that they lack experience."
Who's in 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.
Make sure that the product your broker is offering matches your needs. Know why they're offering a lender from their panel and know what they're offering. Bigger lending panels do not necessarily mean better 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.
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 their 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 Mortgage and Finance Association of Australia (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 Australian Capital Territory, New South Wales, 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