When Jason Pilgrim and his wife, Vanessa, began thinking about buying their first home, their plan to secure finance didn’t stretch much beyond approaching their own bank for a home loan.
"My assumption was that, if you didn't go to one of the big banks directly, it would cost you more and you wouldn’t have access to all the products," Jason explains. "I actually found out it was the opposite."
Jason and Vanessa, married two years ago and living in the Hawkesbury region in Western Sydney, had one challenge to overcome: Jason is self-employed and runs an injury rehabilitation facility.
He and Vanessa, a high school teacher, weren't sure how lenders would view their loan application, so they were "looking for some good advice". After a referral from a friend, the couple contacted Cathy Bell, a broker at Smartline in Richmond, Sydney.
"We didn't want to just walk into a bank and take something off the shelf," Jason says.
"We thought if you get someone who backs someone up and says they are good, you’re going to choose that person instead of just opening the yellow pages."
Simplifying the process
From their very first meeting, Jason says, Bell simplified the process and put them at ease.
She quickly analysed their situation and, after taking Jason’s self-employed status into account, compiled a short list of appropriate loan products.
Jason says he and his wife were impressed by how much work she did for them, and "the speed at which she did it".
"I spoke to her that morning and the next day she came back to us with several options," he explains.
"We then supplied her with our information, and she took care of the whole thing. Everything went smoothly. It was fantastic."
After looking at a few loan options, the pair decided to go with Westpac, and selected a partial fixed rate and variable loan for their first home. They paid $520,000 for the property, and borrowed around 94% of the purchase price.
"I don't think it could be any easier," Jason says of the overall experience with his broker.
"It just worked; it was easy, and it was time-efficient."
Coming back for seconds
Jason and Vanessa were so pleased with their broker's work that they returned to her recently for a second purchase – their first investment property.
"The second time was even easier because by then she knew our circumstances," he says.
The broker takes care of things about their mortgages that "we wouldn't even know how to deal with," Jason adds, and keeps in regular contact by e-mail and up-to-date newsletters – "to make sure we're always getting the best deal and service."
"I wouldn't even know what questions to ask, but it's all at the touch of a button for her,” he says. “It’s just so quick and easy, and she knows her stuff."
Background on brokers
Brokers have access to a range of products through a panel of lenders they are accredited with. They act as go-betweens for lenders and borrowers in a way that is very like travel agents. Travel agents help you find the best airfare with the airline of your choice, and that airline pays the travel agent a commission for their services. Mortgage brokers work in a similar fashion, finding a suitable deal for you using the information you provide.
Haley North, a mortgage broker with Smartmove Professional Mortgage Advisors, says it’s important that your mortgage broker seeks to understand your needs, lifestyle and plans for the future.
"On top of this, they should be explaining appropriate loan products or packages for your needs and explaining the risks involved with your lending.A good broker can assist you in working through your budget if that’s an area where you need assistance to ensure you don’t get yourself into hot water down the track, but also to make sure you don’t aim lower than you could have comfortably achieved," she explains.
Sarah Eifermann, a mortgage planner with SFE Loans says: "Mortgage brokers should be accredited with an industry body such as the Mortgage & Finance Association of Australia [MFAA] and must have their Credit Ombudsman Service Limited [COSL] membership.
"They should be able to offer over 20 different lending institutions to choose from, and have more than two years’ experience in the industry, as well as a Certificate IV in Financial Services (Mortgage Broking)."
"They should also have Professional Indemnity insurance," she adds.
A broker shouldn't receive any extra commissions by recommending particular loans. In order to make certain of this, Eifermann says 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 regard to the home loan they're applying for," she explains.
"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."
"A good broker should also ensure that you have the opportunity to speak to a qualified financial advisor with regard to other risk and insurance products that may suit a particular situation or need," says North.
The first encounter
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 a broker. Then, meeting this broker face to face can 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. The broker you choose should find the loan that best suits your needs, not the other way around.
"Make sure advice comes from a professional who belongs to a recognised industry body such as the MFAA, and who has a thorough understanding of the first homebuyer segment – if you’re a first homebuyer," explains Melos Sulicich, CEO of RAMS.
"Check whether they have any positive references from other satisfied customers. When you are dealing with mortgage experts who are MFAA-qualified, you can have added peace of mind and security about your purchase. Have a good conversation with them and make sure brokersthey are someone you feel comfortable dealing with."
Look for a broker who is up to date with industry knowledge and make sure they can adhere to strict deadlines. Test the water with the broker, ensuring they are punctual and well organised, and that they give you confidence in their decision-making and problem-solving capabilities.
"The borrower should be asking the broker what their main lenders of choice are and why. Most mortgage brokers have five or six lenders which they tend to prefer to use because they are quicker to settle on the loan and approve the borrower – this means less hassle for the borrower. It is only about 99% of the time that commissions come into the picture these days," Eifermann states.
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 heir 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," Eifermann explains.
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 the interest rate or features of the loan product. Also ask for a loan-product 'fact sheet'. Having what the broker has offered in writing also ensures there are no nasty surprises later.
Insist that you are given a hard copy of the comparison rate table for 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 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, simply follow your instincts. A broker's reputation and past performance are also indicators of their worth.
20 questions you need to ask a broker
1. How long have you been in the industry?
2. How many lenders do you have accreditation with?
3. Who do you write most of your loans with and why?
4. Is there a fee for your services?
5. Are you a member of an industry association? If so, which one? Is it on your business card?
6. Do you have a strategy for the current interest rate outlook?
7. What are the establishment fees, legal fees, valuation fees and ongoing fees? Are there any other fees?
8. Do you have a mortgage? If so, who with, why, fixed or variable?
9. How is business?
10. Have you ever lost any of your clients? If so, please explain.
11. What is your customer service promise?
12. What can you provide that other brokers and lenders can't?
13. How does your service work?
14. Do you specialise in any particular type of client?
15. How do I know you're going to look after my best interests?
16. How will you look after me during the process of getting the loan?
17. What happens after the loan has been settled?
18. What happens if the bank or lender makes a mistake with my loan?
19. Do you have any testimonials?
20. Do you have any industry qualifications or training?