First homebuyer Dan Meyers, a production manager for an advertising agency in Sydney, fell into home ownership by chance. When Dan's parents sold their four-bedroom property at Wattle Grove, near Liverpool in Sydney’s west, instead of putting it on the market, they offered it to Dan at a discounted price of $300,000, as a gift towards his first home.
"The property is actually valued at $450,000," says Dan. "This offer was too good to refuse," he adds.
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."
Dan's mortgage broker arranged an ANZ Simplicity Plus home loan for $285,000 on a 30-year term with an interest rate of 7%. Dan also contributed a $15,000 deposit of his own.
Dan says the biggest advantage of having a good mortgage broker was that he did all of the running around and visited Dan's 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 doesn't worry me, although at the end of the day there are always things that you could have asked more questions about," 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'd been more proactive in learning more about home loans. If I had, I'd 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 downfall."
Dan says borrowers shouldn't only research the lender of their final choice, but conduct research into their broker to make sure they're informed enough for your individual home loan request. "Ask friends and family, and read up on it 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."
"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 plans to take advantage of recent rate cuts by making additional payments on his home loan.
"I've developed a strategy to pay off as much as possible off my home loan in order to get ahead. My goal is to buy a home in Balmain [in Sydney's inner west]. I'll keep this house for 12 months, knock it down, build duplexes, sell them and be able to afford a home over $800,000 on my own wage at 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 achievable."
Dan's loan details
Loan product: Simplicity Plus
Loan amount: $285,000
Interest rate: 7%
Loan term: 30 years
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 between lenders and borrowers, in a way that’s very similar to travel agents. Travel agents help you find the best airfare with the airline of your choice, and that airline pays a commission to the travel agent for its 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.
Says Sarah Eifermann, a mortgage planner with SFE Loans: "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 and a Certificate IV in Financial Services (Mortgage Broking). They should also have Professional Indemnity insurance."
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," explains Eifermann.
"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 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. 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 thorough understanding of the first homebuyers 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're dealing with mortgage experts who are MFAA qualified, you can have added peace of brokersmind and security about your purchase. Have a good conversation with them and make sure you feel comfortable dealing with them."
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.
"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’re quicker to settle on the loan and approve the borrower – this means less hassle for the borrower. These days, commissions rarely come into the picture," explains Eifermann.
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. 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.
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're given a hard copy of the comparison rate table of the home loans you’re considering. A comparison rate factors in the interest rate plus all costs you’ll 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 will explain and clarify the financial terms and issues in ways that you understand.
The broker should have ready access to an extensive range of lenders, with a mix of traditional (banks, building societies and credit unions) and non-traditional (wholesale or non-conforming) institutions. 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 conforms with 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 the 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.
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?