Getting a home loan can be a highly stressful experience, what with all the jargon and paperwork, not to mention the big dollars at stake.
That’s why a lot of people use mortgage brokers – in fact, a majority of people who take out a home loan now do it through a broker rather than going direct-to-lender.
But that presents its own challenges, because while some brokers are experienced professionals who will provide great service, others are poor operators who will leave you with a bad taste in your mouth. So how do you separate the good from the bad?
To make the process easier, here are 10 questions to ask while you’re shopping around for brokers and then deciding which home loan to select.
“How much experience do you have?” is a good place to start, because a more experienced broker will generally be more knowledgeable than a less experienced broker.
Press the broker to give you a specific answer, such as “Five years” or “I’ve been a broker since 2013”, rather than something vague like “I’ve got a lot of experience”.
Next, ask this follow-up question: “How many loans have you written during that time?” That will give you a better understanding of their experience.
For example, imagine two brokers joined the industry in 2013, but that Broker A had written 500 loans during that time and Broker B had written 300. In that case, even though both parties would be able to claim five years of industry experience, there would actually be a clear difference in hands-on experience.
Another good question to ask is “What sort of clients do you specialise in?” That’s because while most brokers focus on ‘plain vanilla’ clients, others might focus on, say, sophisticated investors or borrowers with credit problems.
To continue our hypothetical example, Broker A might have done 450 vanilla loans and 50 bad-credit loans, while Broker B might have done 50 vanilla loans and 250 bad-credit loans. So if you were a borrower with credit problems, you might be better off with Broker B.
Organising finance and purchasing property can be complicated and stressful, so you want to know you’re in safe hands. That’s why, before you settle on a particular broker, you should ask: “Why should I choose you rather than another broker?”
Don’t let the broker get away with vague statements like “Because I’m the best” or “Because I provide great service”. Use follow-up questions to demand detail. “What specific things make you better than other brokers? What, specifically, do you do to deliver great service?”
Another good question to ask is: “How much hand-holding will you do during the buying process?” What you want to know is whether your broker will closely guide you through what is a complicated process, or whether they’ll expect you to figure it out for yourself.
If a problem arises during the loan application process, you’ll want your broker to respond quickly. So you should ask, “How quickly will you respond to my messages?” Again, demand a specific answer – “Within three hours”, say, rather than “Quickly”. You should then follow up with: “What happens if you don’t respond to my messages within that timeframe?” Finally, ask if the broker would be willing to put both those responses in writing.
Lenders and loans
You probably know that mortgage brokers can organise loans through a variety of lenders. But what you might not realise is that different brokers work with different lenders – and that brokers can’t work with a particular institution unless they’ve received accreditation from that particular institution.
That’s why you should ask: “How many lenders are on your panel? And who are they?” Brokers generally have between 10 and 30 lenders on their panel; some might have as many as 40. Bear in mind, though, that there are about 150 home loan lenders in Australia, so even brokers with big panels will be accredited with just a minority of lenders.
Assuming you do engage the services of a particular broker, the time will come when that broker presents you with several home loan recommendations. Your natural response should be: “Why did you choose those particular loans?”
The broker should then explain why those loans are best suited to your unique circumstances. The explanation might touch on several things:
- Interest rate (e.g. 4.50 per cent)
- Interest rate type (variable or fixed)
- Interest rate structure (principal and interest or interest-only)
- Loan features (e.g. offset account, redraw facility, extra repayments)
- Fees (e.g. upfront fees, monthly fees, discharge fees)
- Loan-to-value ratio, or LVR (which might influence whether you have to pay lender’s mortgage insurance, or LMI)
Now that the broker has presented you with a shortlist of home loans, you’ll need to choose your favourite. First, though, ask this question: “What are the pros and cons of each loan?” That way, you’ll be making the most informed decision.