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.”

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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.

When do mortgage payments start after settlement?

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.

What are the features of home loans for expats from Westpac?

If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.

The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.

Why does Westpac charge an early termination fee for home loans?

The Westpac home loan early termination fee or break cost is applicable if you have a fixed rate home loan and repay part of or the whole outstanding amount before the fixed period ends. If you’re switching between products before the fixed period ends, you’ll pay a switching break cost and an administrative fee. 

The Westpac home loan early termination fee may not apply if you repay an amount below the prepayment threshold. The prepayment threshold is the amount Westpac allows you to repay during the fixed period outside your regular repayments.

Westpac charges this fee because when you take out a home loan, the bank borrows the funds with wholesale rates available to banks and lenders. Westpac will then work out your interest rate based on you making regular repayments for a fixed period. If you repay before this period ends, the lender may incur a loss if there is any change in the wholesale rate of interest.

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.

When does Commonwealth Bank charge an early exit fee?

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

  • If you switch your loan from fixed interest to variable rate
  • When you apply for a top-up home loan
  • If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
  • When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay. 

What are the different types of home loan interest rates?

A home loan interest rate is used to calculate how much you’ll pay the lender, usually annually, above the amount you borrow. It’s what the lenders charge you for them lending you money and will impact the total amount you’ll pay over the life of your home loan. 

Having understood what are home loan rates in general, here are the two types you usually have with a home loan:

Fixed rates

These interest rates remain constant for a specific period and are a good option if you’re a first-time buyer or if you’re looking for a fixed monthly repayment. One possible downside of a fixed rate is that it may be higher than a variable rate. Also, you don’t benefit from any lowering of interest rates in the market. On the flip side, if rates go up, your rate won’t change, possibly saving you money.

Variable rates

With variable interest rates, the lender can change them at any time. This change can be based on economic conditions or other reasons. Changes in interest rates could be beneficial if your monthly repayment decreases but can be a problem if it increases. Variable interest rates offer several other benefits often not available with fixed rate home loans like redraw and offset facilities and free extra repayments. 

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.

How does a mortgage calculator work?

A mortgage calculator is an extremely helpful tool when planning to take out a home loan and working out the costs. Although each mortgage calculator you come across may be slightly different, most will help you estimate how much your repayments will be. The calculator will often also show you the difference in repayments if you repay weekly, monthly or fortnightly. 

To calculate these figures, you’ll be asked to enter a few details. These include the amount you plan to borrow, whether you’re an owner-occupier or an investor, the proposed interest rate and the home loan term. It will also often show you the total interest you’ll be charged and the total amount you’ll repay over the life of the loan.  

Understanding how the mortgage calculator works, helps you to use it to see how different loan amounts, interest rates and terms affect your repayments. This can then help you choose a home loan that you can repay comfortably and save on interest costs. The mortgage calculator lets you compare the benefits and costs of home loans from different lenders to help you make a more informed choice. Use a mortgage calculator to help identify which home loan is most suitable for your requirements and financial situation.

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.

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.