It’s becoming standard practice for Australians to use a mortgage broker these days, with around 40% of all home loans being facilitated by a mortgage broker.
With hundreds of banks and lenders to choose from, it’s no surprise that using a mortgage broker has become more popular. It makes sense.
A bank can only offer you its own limited range of products or services – a broker has access to many different lenders and can match you with the option best for you.
What to expect from a great broker?
A broker does more than just compared prices. A mortgage broker will act as a bridge between you and the wide variety of lenders, getting to understand you and your goals, collecting your information and pre A mortgage broker is not the same as a mortgage banker.
A mortgage banker funds a mortgage with the only it’s own banks’ funds. A broker doesn’t. When a willing borrower is purchasing a new home or refinancing, the broker brings together all the loan options from different lenders for the borrower to choose from, while certifying the borrower for a mortgage plan. A broker gathers information like assets, income, credit report, and others necessary to certify the borrower’s capacity to get financing. sending this in the best way for the banks to review.
A great broker will also educate you on aspects of a loan such as structure, cross-collateralization, repayment options, equity release options, interest options and loan facilities such as re-draw accounts.
Benefits of working with a broker?
A broker should make the process of loan research, selection and application stress-free and simple for you. They will also give you access to a bigger range of lenders, as many lenders offer their products exclusively to brokers. Your broker may also be able to access a better rate or terms than is otherwise available to the public.
How to choose the best broker?
Before you choose a broker, it’s important to understand your own strategy and goals first before you can find a broker who matches your needs as not all brokers specialize in the same areas.
For example, some brokers specialize in commercial investments, loans for people who are nearing retirement or difficult low-doc or non-conforming situations. Many brokers will also claim to work with many of these areas but may necessarily do them well.
Why is this important? Because financing just one or two properties is relatively easy, however, if you ever want to grow your property investment portfolio to several properties, or include some complicated ownership structures, then it pays to have a highly experienced property investment broker – otherwise, you may find yourself caught in a bad finance structure which limits your growth.
Make sure to tell your broker about your long-term plans and ask whether they have worked with other people in your situation and what sort of results they achieved.
How are brokers paid?
A broker will always get paid something by the lender upon a successful settlement of a loan. The amount and way in which they are paid differ largely between lenders. Some pay an immediate sign-up fee and recurring commissions, while others will only pay a percentage of ongoing interest payments as commission for the broker.
Some brokers also charge a fee of a few hundred to a few thousand dollars for their services in addition to the commissions they receive. Generally, these fees are not payable upfront and get bundled into the overall loan value.
While this may make brokers seem like an expensive option, you generally never have to pay them directly from your own pocket – which makes the cost easier to absorb. Additionally, the value they return in terms of education, expertise, guidance, and selection should far outweigh the cost.
Warning signs of a bad broker.
Brokers are under the regulation of the Australian Securities and Investment Commission and some lenders require brokers to be a part of industry bodies like the Finance Brokers Association of Australia (FBAA). It’s a good policy to ask your broker what industry memberships and certifications they hold.
Unfortunately, some brokers will preference recommending products for which they receive the highest commissions – even if they are not necessarily the best option for you. While it’s almost impossible to tell whether a broker does this or not, you should pay careful attention to their initial conversation and whether they repeatedly mention just one or two lenders. If yes then it means they likely favor those lenders. It’s also less likely they will be chasing higher commissions if they charge a fair fee for their work.
Another thing that separates the expert brokers from the run of the mill is the focus they place on interest rates. Many run-of-the-mill brokers will focus on just getting you the highest loan amount for the lowest interest rate. While this may sound appealing at first, this way of thinking completely ignores all the other features of the loan – which may or may not match your needs. For example, are you able to release any equity as cash if you need to? Are you able to pay extra into your loan to offset the interest, and withdraw it if you need it?
If you are in need of a good broker and not sure where to look then drop us a line and we would be happy to connect you with one of our trusted partners in your area.