Mortgage Brokers:
What separates the best from the rest?

Finding the right mortgage broker

Brokers play a vital role in your homeownership journey, and it is a must for you to choose your broker wisely, just as you would with your home loan.

When looking for brokers, you need to make sure that they have a license and are accredited under the National Consumer Protection Act.

They should also be a member of a reputable industry association such as the Mortgage and Finance Association of Australia, the Mortgage Industry Association of Australia, or the Credit Ombudsman Service.

How do you start looking for a broker? One way is to go directly to brokerage firms that have a roster of experienced brokers. Some consumer-oriented websites, like Your Mortgage, can also help you reach out to the right brokers.

Word-of-mouth referrals from friends and family can also assist you in finding the best broker to work with. These recommendations can help you get a better sense of your brokers' work ethic and experience: Are they punctual and organised? Do they show in-depth market knowledge?

Here are some of the qualities you should look for when finding a mortgage broker:

1. Detail-oriented
   Applying for a home loan is a painstaking process that needs an attentive eye. Mortgage brokers should always be on top of things and should never leave out crucial information. One overlooked mistake could cost you your dream home.
2. Transparent
   An ideal broker keeps you updated and discloses every factor that can affect your mortgage application. Transparent brokers also make an effort to help you understand the perks and disadvantages of certain home loan offerings.
   Brokers should also be upfront and direct about the fees and charges related not just to the loans but also to their services. They should always put your needs first — they should not give you an offer that could eventually leave you with empty pockets. It is actually a mandatory standard for financial professionals to always act in the best interests of their clients.
3. Excellent communicator
   Communication is key to any successful relationship. It is critical for mortgage brokers to have excellent communication skills — you want a broker who can explain complicated loan terms and make sense of confusing processes.
   Part of being an excellent communicator is the ability to listen. If you encounter a broker who keeps on bombarding you with options without even considering your financial health, then you should run away fast. Brokers who seem to ignore your qualms and uncertainties are likely to be only after the commission they are going to make when you close the deal.
4. Efficient
   The process of buying a home is already stressful — you do not want to waste any of your time waiting for your broker who regularly shows up late to meetings or never returns your calls. A good broker should always respect your time and should not keep you hanging, especially in the most pressing times.
   For them to be efficient, brokers need to be organized. Since they deal with a lot of clients on a daily basis, they should always keep structured schedules and to-do lists. You would not want to work with brokers who do not have a system in place to organize their commitments.
5. Practical
   Mortgage brokers are not here to promise you the world. Instead, they should always be in touch with reality. Practical brokers assess your current financial conditions and help you determine the most plausible options. A good broker is analytical — they should be able to point out things about your financial health that may not be obvious to you and offer you sound advice on how to overcome financial obstacles.
6. Knowledgeable
   You want mortgage brokers who are the best at what they do. They need to have a deep understanding of the market and how to navigate it. They know not just what they are offering but also the other options in the market. Brokers who are always unsure about the questions you ask might not be the ideal partner in this journey.
7. Committed
   A mortgage can be a life-long commitment, and you want a broker who doesn’t see you as just a one-off deal. When you close your transaction and get that stamp of approval, you need a broker who pledges to keep in touch should your needs and goals change.

Asking your broker the right questions

When you get a mortgage broker, you are, in essence, hiring them for their services. And as with any job application, you should ask them certain questions that will help you get to know them more.

One of the first things you need to ask your brokers about is their network of lenders. This will show you how diverse and wide your options are going to be. It also shows which lenders trust them to present their offerings to potential clients.

It would be best if you also ask them about how they are getting paid. Generally, most brokers offer their services for free while others, especially those under an agency, might charge you with a fee.

Brokers get commissions from lenders. There are two types of commission: upfront and trailing. An upfront commission is a payment made by the lender to a broker once a borrower seals the deal.

Brokers can still get paid after finalizing a loan deal through trailing commissions. Lenders will continue to pay the broker recurring commission as long as you stay with your current deal, and you do not fall into arrears.

This is where a potential conflict of interest can arise. Brokers might promote particular mortgage products or lenders without considering your needs because of a generous commission that awaits them after the deal. While it is always imperative for brokers to prioritise your needs, there could be a few bad apples who only care about the money they would make out of the deal.

Here are some of the other questions you can ask your brokers to get to know them more:

• How many years have you been in the industry?
• Which banks do you have an accreditation with?
• Why did you choose to work with your network of lenders?
• What types of loans are you offering?
• Do you have an ASIC license?
• What industry organizations are you a part of?
• How do you go about comparing interest rates?
• Do you specialise in a particular type of client?
• What is your time availability? When is it okay to call or send you an email?
• How will you help me look for the right home loan?
• Why should I get your services instead of going directly to the bank?
• May I speak with your other clients?

Getting a better deal with your mortgage broker

The power of mortgage brokers lies in their network of lenders and home loan products. In a very competitive space, it is a massive disadvantage for buyers to miss out on the better deals available in the market.

Before helping you submit your home loan application, mortgage brokers determine the best deal by performing several checks on your finances. On the other hand, you can also get an idea of how much the mortgage expense would be using a financial calculator. 

Your credibility as a borrower

One of the essential things brokers check is your credit score, which serves as a report card that allows lenders to get a glimpse of how you are as a borrower. If your broker thinks your credit score is not at an ideal level, he or she might advise you to settle other financial obligations on time.

Brokers use an excellent credit score to get the upper hand when negotiating with banks for better offers. To help you gauge your current borrowing power you can use this tool: Borrowing Power Calculator

Your source of income

Brokers also need to know your sources of income. If you are employed, you need to be at least six months in your current position to have a higher chance of getting approved for a loan. Brokers can easily find the best deals if you have a stable source of income.

If you are a self-employed, part-time, or casual worker, the process gets a little complicated. Lenders often see these types of employment as riskier, and they could offer you an expensive deal. However, a mortgage broker can help you find the right lender and the ideal home-loan product for your situation.

Comparing home loans with your broker

Identifying what you need and what you want is crucial for brokers when comparing home loans.

Brokers will be able to help you identify which home-loan features you might need. These features can help you save money and provide flexibility as you make your repayments. Some of the features you might want to consider are the following:

Offset accounts

An offset account acts like a high-interest savings account. It helps you save by accounting your savings against your loan balance. This means that you will not be paying interest on the entirety of your home loan, but only on a particular portion not covered by your offset account. The funds you save in your offset account are not considered extra repayments.

Redraw facilities

This home-loan feature is often confused with offset accounts. While they both help you save in the long run, redraw facility works differently. It allows you to make additional payments to your loan that you can withdraw in the future. Extra repayments mean shaving off the principal amount of your loan. Some lenders charge fees for redraws.

Portability

Also known as security substitution, the portability feature allows you to keep the loan when you sell your home or your investment property and purchase another. This feature can sometimes be complicated, given that the values of your current home and your target property are considered. Mortgage brokers can explain the restrictions of this feature.

Extra repayments

A mortgage that allows you to make additional repayments can lead to significant savings over the long term. It will slash the total amount of interest you pay over the life of the loan. Some lenders charge a fee for additional repayments. However, your mortgage broker can help you find a lender that provides this feature for free.

Line of credit

A line of credit allows you to borrow against the equity of your home. If the value of your home has increased considerably and you need some extra cash, this feature is the answer.

Fixed rate or variable rate?

Knowing the pros and cons of fixed and variable rates is also part of comparing home loans. Will it be ideal for you to have your rate fixed for a period of five years? Or will it be better to have a rate that follows the market movements?

A fixed-rate home loan locks your mortgage repayments into an unchangeable rate over a certain period of time, usually up to five years. Once the fixed-rate contract lapses, the standard variable rate applies. Fixed rates provide certainty, allowing you to easily organize your budget and stay on top of your repayments. They also protect you from sudden rate hikes that usually happen when the housing market is on fire and wages are skyrocketing.

On the other hand, a variable-rate home loan follows the movement of cash rates. When the Reserve Bank of Australia lowers the cash rate, you effectively get a reduction in your interest rate as well. Variable-rate home loans give you more flexibility, allowing you to make extra repayments and making it easier to switch loans.

Split loan

If you want to get the best of both worlds, your broker might suggest getting a split loan. This option reduces the risks on each interest type and provides you with both security and flexibility. A split mortgage is particularly useful when the interest-rate cycle is uncertain.

Mortgage brokers also consider the associated fees when comparing home-loan products. For this, they use the home loan's comparison rate. This rate combines the interest rate and all the other upfront and ongoing fees and charges of the home loan. In simplest terms, a comparison rate tells you the true cost of the loan. Brokers use this rate to compare home loans more efficiently.