Mortgage brokers are there to help you select the right loan, but how do you select the right broker?
It’s essential to do your due diligence on any professional that you use when it comes to buying a property. After all, buying a home is likely to be the biggest purchase you’ll ever make, so cutting corners when it comes to researching the people who you’ll be doing business with can cost you thousands.
When it comes to financing your purchase, one invaluable member of your team may well be a mortgage broker, but what does a broker do? Essentially, he or she acts as a go-between for lenders and borrowers. A broker will have access to a range of products through a panel of lenders he or she is accredited with, and his or her main goal should be to find the most suitable deal for you using the information you provide.
Brokers have a legal ‘responsible lending’ obligation to ensure that you are not placed into a loan that is unsuitable for you, and must give you a Credit Guide (with information including their licence number, fees and details of your right to complain) before they provide you with any assistance.
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 the broker face to face will help you decide whether you can work with him or her in the long term.
Alternatively, 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 will ensure you pick the best product for your needs. To help you make this decision, your broker should have several years’ experience in the mortgage industry and be properly qualified. Ask to read their testimonials from previous clients or to speak to them directly, as this allows insight into their relationships with borrowers.
Your broker should be accredited under the National Consumer Credit Protection Act, have a Certificate IV and preferably a Diploma in Financial Services Mortgage Broking, be a member of the Mortgage & Finance Association of Australia (MFAA) and/or the Finance Brokers Association of Australia (FBAA), and be a member of the 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’re 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. If your broker doesn’t appear 100% confident in the information he or she provides, then that’s a pretty clear indication they lack experience.
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 a way 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.
Who’s on 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 only use a few particular lenders for most of their clients, ask why.
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 exactly what they’re offering. Bigger lending panels don’t necessarily mean better service. All in all, it comes down to the borrower’s needs and wants.
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 factsheet, too: 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 of the other costs – other than any exit fees – that you will incur with that loan. This can help you determine which home loan will work best for you financially.
The industry has been self-regulated in most states, but a new – and rigorous – regulatory regime has recently been put in place to govern brokers.
The regime parallels that which governs financial planners. All brokers must currently be registered with the Australian Securities and Exchange Commission (ASIC) and ,as of 1 July 2011, must either hold an Australian Credit Licence (ACL) or be a ‘credit representative’ of an organisation that holds an ACL. You can check whether a broker is registered at www.asic.gov.au, and a broker should give you details of his or her licence number, fees and details of your right to complain prior to providing you with any assistance.
Over and above ASIC accreditation, make sure your broker is also a member of at least one of the industry bodies as well as with ASIC: these are the Mortgage & Finance Association of Australia (MFAA) and/or the Finance Brokers Association of Australia (FBAA). Ask whether the broker has a Certificate IV in Financial Services. This is the key qualification to watch for, as a broker usually can’t become accredited by ASIC without it, unless they can satisfy experience criteria.
Additionally, all brokers are required to be members of the Credit Ombudsman Service Limited (COSL) or another external dispute scheme approved by the ASIC, so in the event of dispute you will have recourse to a complaints body. You can also complain to ASIC online or by calling 1300 300 630.
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.
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? Under the new legislation, brokers must disclose the commission paid to them by lenders, so make sure they give you this information.
Always remember that if a broker secures you a loan that adheres to all of the requirements set out in the agreement that 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 the most important when choosing a mortgage broker. If a person you’re dealing with fulfils these criteria, then follow your instincts. A broker’s reputation and past performance are also strong indicators of their worth.
20 questions you should ask your 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 service?
5. Are you licensed or accredited with ASIC?
6. Are you a member of an industry body? If so, which one?
7. Do you have a strategy for the current interest rate outlook?
8. What are the establishment fees, legal fees, valuation fees and ongoing fees that I might have to pay? Are there any other fees?
9. Do you have a mortgage? If so, who is it with and why? Is it fixed or variable?
10. How is business going?
11. Can I speak to one of your other clients?
12. What can you provide that other brokers and lenders cannot?
13. How does your service work?
14. Do you specialise in any particular type of client?
15. How do I know you are going to look after my best interests?
16. How will you look after me in the process of getting a 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. What industry training and/or qualifications do you have?