The top questions refinancers should ask a mortgage broker

The 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 most esteemed mortgage brokers what refinancers should ask to ensure the process is as seamless as possible.

  1. What are the benefits of refinancing?

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.

Loan Market is equipped to navigate the sometimes murky waters of refinancing, with a panel of over 30 banks and lenders (ones you know and trust) allowing the comparison of hundreds of different products. Today, Loan Market is rated 4.8/5 on Product Review where hundreds of satisfied customers attest to great service delivery and positive life-changing experiences. Last year alone, it helped 20,000 Australians and New Zealanders secure home loans.

home loan term length

  1. 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.”

Loans with no upfront fees

Being Perth’s premier off-the-plan lending specialist, Blackburne Mortgage Broking has assisted hundreds of clients in obtaining finance for their apartment purchases, securing their position as the most trusted name in off-the-plan finance yet offering second to none financial solutions for all residential lending requirements.

The Blackburne Mortgage Broking team pride itself on building strong and lasting relationships based around empowerment, trust and integrity ensuring their clients are confident to make informed decisions about their financial future. The team has won a number of awards, including the AFG Excellence Awards 2016 Finalists – Top 30 Loan Writers (Paul Prindiville) and Top 15 Organisations (Blackburne Mortgage Broking), AFG Mortgage Broker of the Year Finalist 2013, 2014 and 2015.

  1. 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. 

“As experienced investors in our own right, Trilogy Funding mortgage brokers recognise that your wealth creation journey doesn’t stop with your first property purchase. As such, you require a finance portfolio that can go the distance.

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

i. 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.

ii. 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.  

Fixed rate investment loans

iii. 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.

iv. 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.

v. 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 rate.

Loans with a low interest rate

4. How can you help me?

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.”

  1. 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.”

The Finance Detective specialises in industry leading solutions for home, commercial and personal loans, first home buyer loans and other many complementary financial products.

  1. 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.”

Did you find this helpful? Why not share this article?

Advertisement

RateCity

Money Health Newsletter

Subscribe for news, tips and expert opinions to help you make smarter financial decisions

By signing up, you agree to the ratecity.com.au Privacy & Cookies Policy and Terms of Use, Disclaimer & Privacy Policy

Advertisement

Learn more about home loans

How to break up with your mortgage broker

If you find a mortgage broker giving you generic advice or trying to sell you a competitive offer from an unsuitable lender, you might be better off  breaking up with the mortgage broker and consulting someone else. Breaking up with a mortgage broker can be done over the phone, or via email. You can also raise a complaint, either with the broker’s aggregator or with the Australian Financial Complaints Authority as necessary.

As licensed industry professionals, mortgage brokers have the responsibility of giving you accurate advice so that you know what to expect when you apply for a home loan. You may have approached the mortgage broker, for instance, because you have questions about the terms of a home loan a lender offered you. 

You should remember that mortgage brokers are obliged by law to act in your best interests and as part of complying with The Australian Securities and Investments Commission’s (ASIC) regulations. If you feel you didn’t get the right advice from the mortgage broker, or that you lost money as a result of accepting the broker’s suggestions regarding a lender or home loan offer, you can file a complaint with the ASIC and seek compensation. 

When you first speak to a mortgage broker, consider asking them about their Lender Panel, which is the list of lenders they usually recommend and who may pay them a commission. This information can help you decide if the advice they give you has anything to do with the remuneration they may receive from one or more lenders.

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

What are the responsibilities of a mortgage broker?

Mortgage brokers act as the go-between for borrowers looking for a home loan and the lenders offering the loan. They offer personalised advice to help borrowers choose the right home loan for their needs.

In Australia, mortgage brokers are required by law to carry an Australian Credit License (ACL) if they offer credit assistance services. Which is the legal term for guidance regarding the different kinds of credit offered by lenders, including home loan mortgages. They may not need this license if they are working for an aggregator, for instance, as a franchisee. In both these situations, they need to comply with the regulations laid down by the Australian Securities and Investments Commission (ASIC).

These regulations, which are stipulated by Australian legislation, require mortgage brokers to comply with what are called “responsible lending” and “best interest” obligations. Responsible lending obligations mean brokers have to suggest “suitable” home loans. This means loans that you can easily qualify for,  actually meet your needs, and don’t prove unnecessarily challenging for you.

Starting 1 January 2021, mortgage brokers must comply with best interest obligations in addition to responsible lending obligations. These require mortgage brokers to act in the best interest of their customers and also requires them to prioritise their customers’ interests over their own. For instance, a mortgage broker may not recommend a lender who gives them a commission if that lender’s home loan offer does not benefit that particular customer.

Will I have to pay lenders' mortgage insurance twice if I refinance?

If your deposit was less than 20 per cent of your property’s value when you took out your original loan, you may have paid lenders’ mortgage insurance (LMI) to cover the lender against the risk that you may default on your repayments. 

If you refinance to a new home loan, but still don’t have enough deposit and/or equity to provide 20 per cent security, you’ll need to pay for the lender’s LMI a second time. This could potentially add thousands or tens of thousands of dollars in upfront costs to your mortgage, so it’s important to consider whether the financial benefits of refinancing may be worth these costs.

What is the best interest rate for a mortgage?

The fastest way to find out what the lowest interest rates on the market are is to use a comparison website.

While a low interest rate is highly preferable, it is not the only factor that will determine whether a particular loan is right for you.

Loans with low interest rates can often include hidden catches, such as high fees or a period of low rates which jumps up after the introductory period has ended.

To work out the best value for money, have a look at a loan’s comparison rate and read the fine print to get across all the fees and charges that you could be theoretically charged over the life of the loan.

Which mortgage is the best for me?

The best mortgage to suit your needs will vary depending on your individual circumstances. If you want to be mortgage free as soon as possible, consider taking out a mortgage with a shorter term, such as 25 years as opposed to 30 years, and make the highest possible mortgage repayments. You might also want to consider a loan with an offset facility to help reduce costs. Investors, on the other hand, might have different objectives so the choice of loan will differ.

Whether you decide on a fixed or variable interest rate will depend on your own preference for stability in repayment amounts, and flexibility when it comes to features.

If you do not have a deposit or will not be in a financial position to make large repayments right away you may wish to consider asking a parent to be a guarantor or looking at interest only loans. Again, which one of these options suits you best is reliant on many factors and you should seek professional advice if you are unsure which mortgage will suit you best.

What is a comparison rate?

The comparison rate is a more inclusive way of comparing home loans that factors in not only on the interest rate but also the majority of upfront and ongoing charges that add to the total cost of a home loan.

The rate is calculated using an industry-wide formula based on a $150,000 loan over a 25-year period and includes things like revert rates after an introductory or fixed rate period, application fees and monthly account keeping fees.

In Australia, all lenders are required by law to publish the comparison rate alongside their advertised rate so people can compare products easily.

How can I get a home loan with bad credit?

If you want to get a home loan with bad credit, you need to convince a lender that your problems are behind you and that you will, indeed, be able to repay a mortgage.

One step you might want to take is to visit a mortgage broker who specialises in bad credit home loans (also known as ‘non-conforming home loans’ or ‘sub-prime home loans’). An experienced broker will know which lenders to approach, and how to plead your case with each of them.

Two points to bear in mind are:

  • Many home loan lenders don’t provide bad credit mortgages
  • Each lender has its own policies, and therefore favours different things

If you’d prefer to directly approach the lender yourself, you’re more likely to find success with smaller non-bank lenders that specialise in bad credit home loans (as opposed to bigger banks that prefer ‘vanilla’ mortgages). That’s because these smaller lenders are more likely to treat you as a unique individual rather than judge you according to a one-size-fits-all policy.

Lenders try to minimise their risk, so if you want to get a home loan with bad credit, you need to do everything you can to convince lenders that you’re safer than your credit history might suggest. If possible, provide paperwork that shows:

  • You have a secure job
  • You have a steady income
  • You’ve been reducing your debts
  • You’ve been increasing your savings

How do I calculate monthly mortgage repayments?

Work out your mortgage repayments using a home loan calculator that takes into account your deposit size, property value and interest rate. This is divided by the loan term you choose (for example, there are 360 months in a 30-year mortgage) to determine the monthly repayments over this time frame.

Over the course of your loan, your monthly repayment amount will be affected by changes to your interest rate, plus any circumstances where you opt to pay interest-only for a period of time, instead of principal and interest.

When should I switch home loans?

The answer to this question is dependent on your personal circumstances – there is no best time for refinancing that will apply to everyone.

If you want a lower interest rate but are happy with the other aspects of your loan it may be worth calling your lender to see if you can negotiate a better deal. If you have some equity up your sleeve – at least 20 per cent – and have done your homework to see what other lenders are offering new customers, pick up the phone to your bank and negotiate. If they aren’t prepared to offer you lower rate or fees, then you’ve already done the research, so consider switching.

What is an interest-only loan? How do I work out interest-only loan repayments?

An ‘interest-only’ loan is a loan where the borrower is only required to pay back the interest on the loan. Typically, banks will only let lenders do this for a fixed period of time – often five years – however some lenders will be happy to extend this.

Interest-only loans are popular with investors who aren’t keen on putting a lot of capital into their investment property. It is also a handy feature for people who need to reduce their mortgage repayments for a short period of time while they are travelling overseas, or taking time off to look after a new family member, for example.

While moving on to interest-only will make your monthly repayments cheaper, ultimately, you will end up paying your bank thousands of dollars extra in interest to make up for the time where you weren’t paying off the principal.

What is the difference between fixed, variable and split rates?

Fixed rate

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

Variable rate

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

Split rates home loans

A split loan lets you fix a portion of your loan, and leave the remainder on a variable rate so you get a bet each way on fixed and variable rates. A split loan is a good option for someone who wants the peace of mind that regular repayments can provide but still wants to retain some of the additional features variable loans typically provide such as an offset account. Of course, with most things in life, split loans are still a trade-off. If the variable rate goes down, for example, the lower interest rates will only apply to the section that you didn’t fix.

What do mortgage brokers do?

Mortgage brokers are finance professionals who help borrowers organise home loans with lenders. As such, they act as middlemen between borrowers and lenders.

While bank staff recommend home loan products only from their own employer, brokers are independent, so they can recommend products from a range of institutions.

Brokers need to be accredited with a particular lender to be able to work with that lender. A typical broker will be accredited with anywhere from 10 to 30 lenders – the big four banks, as well as a range of smaller banks, credit unions and non-bank lenders.

As a general rule, brokers don’t charge consumers for their services; instead, they receive commissions from lenders whenever they place a borrower with that institution.

How do I refinance my home loan?

Refinancing your home loan can involve a bit of paperwork but if you are moving on to a lower rate, it can save you thousands of dollars in the long-run. The first step is finding another loan on the market that you think will save you money over time or offer features that your current loan does not have. Once you have selected a couple of loans you are interested in, compare them with your current loan to see if you will save money in the long term on interest rates and fees. Remember to factor in any break fees and set up fees when assessing the cost of switching.

Once you have decided on a new loan it is simply a matter of contacting your existing and future lender to get the new loan set up. Beware that some lenders will revert your loan back to a 25 or 30 year term when you refinance which may mean initial lower repayments but may cost you more in the long run.