It was a case of third time lucky for Jocelyn Lau, who stepped into open inspection number three and knew instantly that she’d found the right home
There are plenty of things to take into consideration when buying a home, but first-time buyer Jocelyn Lau had a specific agenda: to find a home in a suburb that was located near where her family and friends lived.
"The house we bought was actually the third house we checked out in Endeavour Hills in Victoria, and we fell in love with it when we first saw it," she says.
They offered $330,000 for the four-bedroom brick house, which Jocelyn says "is a bit big for two of us now, but will be perfect for a medium-size family".
As soon as their offer was accepted, Jocelyn called Costas Louras, a mortgage and finance specialist with Honeycone Home Loans. "He was referred to us by a friend," Jocelyn explains.
"Costas chose a few products that he believed were suitable, analysed each one of them and gave us the pros and cons, to let us make the final decision. We also were able to communicate our needs to him so he would have a better understanding of our saving and spending style, so he could suggest which product to go for."
Choosing her broker
It was important to Jocelyn and her partner that their broker put their needs first and considered their financial situation when suggesting products and arranging facilities, such as cash withdrawals and extra repayments, rather than simply offering a stock-standard recommendation.
"Our family and friends warned us to be careful in choosing a broker, because some of them may not really help you get the right product. Instead, they’ll try to sell you a product that they could get the highest commission from," she says.
"You need to look for an honest broker, which can be hard to tell in a half-hour meeting. Make sure the broker discloses the percentage of the commission he’s getting for different products, and if they push you to get a certain product that has the highest rate of commission, you may need to question why he is recommending that product. Is it because it will benefit him the most, or the product suits you the best?"
Without the referral, Jocelyn admits she would have found it difficult to know which broker to choose, but believes it’s possible for borrowers to qualify their potential new broker upfront.
"The way your broker explains the products and procedures will reveal how much homework he’s done," she says.
"We are very happy with our broker, because he’s open-minded and, most importantly, he’s honest and sincere."
Jocelyn says the service she received from Costas went far beyond helping them select a loan and arrange finance: he also assisted with their paperwork and worked with conveyancers to ensure the process ran smoothly.
"Most first homebuyers don’t know what to do when it comes to the loan application and settlement process. With the help and advice of our broker, a lot of pressure and stress was alleviated," she says.
"We were also surprised about our credit rating. It’s so important to make sure you don’t have any outstanding bills before you apply a home loan; if
you do have any marks against your name, you need to consult your broker for advice."
Now that their loan has been approved and they’ve settled into their new home, Jocelyn says she and her partner are working hard to pay off the mortgage as quickly as possible.
"We hope we can make use of the freedom in our accounts to make extra repayment, targeted $10,000-20,000 annually, to save on the interest costs charged by the bank," she says.
"We’ll continue to keep an eye out if there are better products. Or if there is a sudden change in our financial situation, our broker will be able to help us in that regard."
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 is 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 loan. 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, Eifermann says your broker should provide you with a Finance Broking Agreement, which may vary from state to state, at some time in the initial interview.
"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 different 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 recognised industry body such as the MFAA, and who has 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 they 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 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 that 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. It shouldn’t be the case that commissions come into the picture these days," 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.
Also 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," 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 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 the 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 exposure bill for a comprehensive scheme of regulating the broking industry - the proposed 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 look 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.
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?