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The top questions refinancers should ask a mortgage broker

Six top questions refinancers should ask a mortgage broker

If you’re looking to refinance your mortgage, but are time poor or want a bit of extra help, a mortgage broker can be a real asset. Not only can they take the hassle out of what can be a long and stressful process, but they may be able to get you a better deal.

As with most things, it pays to be prepared. RateCity decided to ask some of Australia’s more esteemed mortgage brokers what refinancers should ask to ensure the process is as seamless as possible.

1. What are the benefits of refinancing home loans?

Whilst the most common reason for people to refinance is in search of a lower interest rate on their mortgage, there are also other motives for it, according to Loan Market, one of the largest mortgage broker businesses in the country with more than 1000 experienced brokers. It listed the following:

  • Cash out for renovations: the need is ‘improve my home’ to add value to an existing property for retention or re-sale.
  • Consolidation of debt: Sometimes people are really hurting (financially) and a consolidation is just what the doctor ordered to release the pressure valve.
  • Cash out for future Investment: the customer is looking to get a deposit ready or buy other investments to build their Wealth.
  • Unhappy with their bank: the customer is motivated by a bad experience and they just want out – finding a lender with great service will be key.

Why is it important to ask?

There are various reasons for refinancing as different people have different financial needs, making the choice of bank/lender dependent on the individual’s circumstances.

For example, the best rate may not be possible if there are arrears on their debts or obtaining extra money for wealth creation may require them to use a bank/lender who will provide them with it.

2. What will my saving in dollar terms be for the first year (less the discharge costs) and then each year after that?

It is important to know the costs involved in moving lenders so that a tangible benefit of the move can be determined,” according to Perth-based Blackburne Mortgage Broking.

“There will be a mortgage discharge fee and a new mortgage registration fee payable on shifting your security property between lenders in the beginning so this cost will need to be factored into your net saving. Once the new loans are set up and in place then that is when the significant savings will begin to accrue.”

3. As a property investor, how do I decide which lender is right for me?

“We focus on far more than the best interest rate or mortgage product when matching clients with lenders,” says Curtis Lunney of Trilogy Funding.

“Ours is a personal, integrated approach that accounts for your specific needs both today and tomorrow. Working closely with property investors, we formulate a comprehensive credit strategy that complements your long-term investment plans and objectives. 

So, what’s the secret to identifying the best possible lender for you? Here are the steps Trilogy Funding uses:

  1. Structure: Will you acquire the asset as a private purchaser, or within a more complex Trust or Company arrangement? Not all residential lenders will accept the structure your investment is purchased or held in.
  2. Security: The type of property you purchase can also significantly expand or narrow the field of lenders from whom you have to select. If you plan on purchasing four townhouses on a single title for instance, only a handful of mortgage providers will be willing to comply. Other factors, including location, a fixed rate loan attached to the security, different caveats or special dispensations on the land or limited use (eg. student or holiday accommodation) can all restrict your lender options, with a growing number of banks now shying away from newly constructed apartment product.  
  3. Serviceability: Once you’ve narrowed the field based on structures and security, it’s time to consider your serviceability. All banks work to slightly different models and internal policy. A good mortgage broker can structure your debt in such a way that the most difficult servicing lenders are approached first. Then, as you grow your asset base and utilise more complex structures, the comparably easygoing lenders are approached. Your serviceability can be impacted by any number of variables, including your credit profile, family situation and frequency and type of income.
  4. Debt exposure: If you’re serviceable with multiple lenders, the next step is to consider existing debt exposure. We recommend no more than $1million to $1.5million worth of debt exposure per lender, as there’s little benefit once you owe them anything more; in their mind, they’ve maximised any interest rate discounts and product suites, so when you reach borrowings above $1.5million, the lender typically dictates the terms.
  5. Interest rate: Finally, if you’ve considered all of the above criteria and still have multiple options from which to choose, you can base your ultimate decision on the best interest rates.

4. How can you help me? How can a mortgage broker help?

The number one question you should ask if ‘how can a broker help me?’, according to Neil Carstairs, the founder of award-winning and MFAA accredited Mortgage Corp.

In answering this question, an experienced broker should be able to:

  • Outline the service they will provide;
  • Advise whether it is worthwhile to refinance now (a good broker will tell you if you should refinance at all);
  • Outline the benefits of refinancing apart from simply lowering your interest rate and your monthly repayments;
  • Explain the costs associated with refinancing;
  • Calculate whether Lenders’ Mortgage Insurance (LMI) would mean you’re not actually saving money from refinancing;
  • Consider the benefits and restrictions of any loans recommended including penalties for early exit; and
  • Explain how refinancing can be suited to your specific goals.

“In fact, a good broker should ask you a lot questions to better understand your objectives and reasons for refinancing,” he adds.

“A broker should not just be clicking a few forms or offering a better interest rate!  They should be assessing if and how refinancing can specifically benefit you, in the short term and in the long run. 

“For example, if you refinance your loan and it’s greater than 80 per cent of your home’s value, you might be charged LMI– that means some borrowers will end up paying LMI twice!  This extra LMI might outweigh any interest savings you would get from switching your loan.     

“However on the other hand if you’re refinancing to consolidate your bad debts to a significantly lower interest rate, you might still be better off, even if you do pay LMI. A good broker will do the calculations for you to see if you actually come out on top. 

"They will also make sure you get a revised valuation done on your home (and any other properties that you own) to try to get you the most competitive rate possible without being out of pocket for LMI.  They will also prompt you to look at all options before considering refinancing.”

5. What costs are involved in refinancing (and how much will I be saving)?

This is an important question to ask, as although refinancers may be looking at a lower interest rate, the costs associated with the move may outweigh the savings to a client,” say Sharni McDonald and Hugh Miller of the Finance Detective, a premium, multiple award-winning broker in Perth.

“The answer, is obviously subject to the lender selected. I would advise that a number of lenders are currently offering a refinance rebate incentive to obtain new business, there may even be no out-of-pocket expenses for the client,” they add.

“In some instances, this will even providing a surplus! However, it is important to consider the fees and charges associated with move. The exit costs (discharge), establishment costs (application and account set up fees) along with any government charges should be disclosed, along with a comparison table showing the estimated savings at the time of calculations. Thus allowing the customer to make an informed decision and the most suitable one for their particular situation.”

6. How do I know it’s the best loan for me, as opposed to the best loan for the broker?

The answer is to seek out a broker who is free from commissions bias, according to Mates Rates Mortgage Brokers.

“You should be confident that you are receiving a loan that provides you with all the features you need, and at the lowest cost which should also include receiving 100% of the monthly paid lender commissions, without the possibility that you will receive an inferior and more costly loan that has a better reward for the broker,” the broker says.

“Ensure that you request a proper comparison of your existing loans interest rates and total costs is provided to you, with all your outgoing and change over costs added as a cost in any recommended lenders interest rate and total costs.

“Whilst a lower interest rate might seem appealing, it is the difference in the total costs that you pay for. It may take many years to recover the refinance costs making refinancing your home loan an unnecessary waste of your time, just for the sake of obtaining a lower interest rate.

“Mates Rates brokers are paid the same regardless of which recommended lender you choose. The Mates Rates Anti Bias Guarantee ensures you that Mates Rates brokers do not exclude any lender that pays commissions to Mates Rates because they pay brokers a lower commission.”

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