Even if you’ve already done the hard yards researching your home loan options, it may be worthwhile to consult a professional mortgage broker. These industry experts can not only give you an insider’s view of Australia’s home loan marketplace, but guide you through the home loan application process, helping to make sure you enjoy a stress-free experience.
What is a mortgage broker and what does a mortgage broker do?
Simply put, a mortgage broker is a conduit between a borrower and a lender. As well as providing this advice, many mortgage brokers can help borrowers to navigate the often complex and confusing world of home loan terms, conditions and other jargon, and help them manage the mortgage application process – organising forms, checking signatures, even negotiating with lenders to get you better interest rates and lower fees.
Consulting a mortgage broker can help save you a lot of time and effort selecting a home loan, especially if your financial situation isn’t the strongest. If you don’t have a great credit rating, or if you can only afford a deposit on the low side, then you may only qualify for a limited range of home loan offers. So rather than making dozens of enquiries and potentially getting dozens of knockbacks, you can call on your broker’s specialist knowledge and experience to point you towards the loans that will best suit your situation, sparing your time and protecting your credit rating.
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How mortgage brokers can help you:
- Mortgage brokers can help you understand your loan options – The mortgage market can be complex, and it’s easy to make mistakes when choosing a home loan, leaving you with a mortgage that’s ultimately unsuitable for your financial needs. A good mortgage broker can help you work out which home loans not only offer affordable interest rates and fees, but features and benefits that can help you achieve your longer-term financial and lifestyle goals.
- Mortgage brokers can get you a better deal – Doing a bit of bartering down at the local markets is one thing, but negotiating with a bank or similar large lender is another. A skilled mortgage broker can negotiate with these lenders on your behalf, using their industry knowledge and experience to get you a more affordable offer on interest rates and fees.
- Mortgage brokers can help you complete your application – Home loans can be complicated, and lenders don’t always make their requirements crystal-clear to borrowers. An experienced mortgage broker can walk you through the home loan application process, guiding you through the tricky parts so you can save time and avoid rookie mistakes, improving the likelihood of your application’s approval.
- Mortgage brokers can find you loans to match your credit score – First home buyers without much of a credit history to speak of may have trouble finding and being approved for home loans, as can borrowers whose credit history isn’t the cleanest. But a mortgage broker can investigate what bad credit home loan options are available to you, such as deals with smaller non-conforming lenders, as well as unadvertised policies from major lenders.
Are mortgage brokers only for first home buyers and bad credit borrowers?
While newcomers to the property market and people with credit problems will often appreciate the helping hand of a mortgage broker to guide them through the purchase of their first home, buyers and investors of all levels of experience can benefit from a mortgage broker’s professional expertise. For every step of your home loan application process, from your initial enquiry to signing on the dotted line, and even refinancing further down the track, a mortgage broker can provide you with valuable advice and assistance, whether you’re:
- Buying your first home;
- Upgrading to your next home;
- Buying an investment property, or;
- Refinancing your existing mortgage.
Make sure that your mortgage broker is aware of your intended goal for your home loan, so they can recommend mortgage offers from lenders who can help you reach these goals.
It’s also worth asking yourself whether over the course of your home loan term, you plan to:
- Pay off your loan ahead of schedule?
- Grow your family?
- Make use of your equity?
The answers to these questions can make a difference to what home loans your mortgage broker will recommend.
Do I still need a mortgage broker if I use a comparison website like RateCity?
While comparison websites such as RateCity can help home buyers, investors and refinancers to compare the available finance options for their property, the personal touch of a mortgage broker can also be an enormous help.
Comparison websites offer borrowers general advice that is applicable to a variety of financial situations. An experienced mortgage broker will be able to provide advice that’s specific rather than generic, taking all the details of your personal financial situation and lifestyle goals into account. Using this information, they can recommend a selection of home loans that are uniquely suited to your finances.
How much does a mortgage broker cost?
Many Australian mortgage brokers don’t charge fees for their services, nor are they paid a a fixed salary. Instead, they are paid on commission by lenders when they sign you up for one of the lender’s home loans. The value of this commission is usually based on the value of the mortgage, and expressed as a percentage.
In addition to this initial commission, certain lenders may pay a smaller “trail” commission to the broker every month over the full length of the loan, for as long as the borrower keeps up with their repayments and doesn’t go into arrears.
Not all mortgage brokers are completely free for borrowers, though. Some mortgage brokers charge fees in addition to receiving commissions, to cover any extra costs or expenses that are involved in the broking process, or for additional nonstandard services. Check with your broker to find out whether you’ll be charged a fee for their service, and what that fee covers.
Some mortgage brokers do operate on a fee-for-service model, where they don’t receive commissions from lenders and instead charge fees to the borrowers they find loans for. These brokers tend to be the exception to the rule though, and may not be easy to find.
Which lenders will my mortgage broker recommend?
A good mortgage broker will be able to recommend several home loan options from different lenders that are appropriate for your financial situation, selected from that broker’s Lender Panel. The more lenders a mortgage broker has on their panel, the greater the variety of home loan options they’ll be able to recommend to clients.
Mortgage brokers are typically required to be accredited with a lender before they can represent their home loan products to clients (and thus earn commissions), to ensure that the broker is familiar with how the lender operates and what benefits and drawbacks are involved with its loan products.
Many mortgage brokers belong to a franchise or mortgage aggregator group (essentially a “wholesaler” that provides mortgage brokers with access to home loan offers from lenders), which provides them with access to many more lenders for their panel. Membership with one of these large organisations often also provide brokers with additional support and assistance, including access to specialised mortgage broking software.
While your mortgage broker will no doubt stand by the quality of the lenders on their panel, there may still be other home loan options available that could also provide a good deal. For example, some mortgage brokers may not include smaller, online-only lenders that don’t offer commissions on their lending panels.
What if my mortgage broker is biased?
Remembering that most mortgage brokers earn most of their income from commissions, it’s reasonable to be concerned that your mortgage broker could end up basing their home loan recommendations on which deals will be better for them than for you.
It’s illegal in Australia for a mortgage broker to recommend a home loan that they know you won’t be able to afford. Brokers are also expected to do right by their customers according to the codes of practice laid out by the industry bodies they are part of. However, Australian brokers are not necessarily legally obligated to always recommend the most affordable home loan for your financial situation.
It’s usually in the broker’s best interest to recommend a home loan that you can afford – if you’re unable to keep up with your loan repayments and end up going into arrears, the broker will lose their ongoing trail commission, costing them money.
Plus, it usually doesn’t cost a broker much to negotiate a good deal on your behalf. Lenders value the service that brokers provide in introducing them to new customers, and often pay brokers the full commission even if they negotiate a discount for you.
When you meet with a mortgage broker, don’t be afraid or embarrassed to politely ask how they get paid. It’s a fair question, and one that licensed mortgage brokers are obliged to be upfront about. In fact, according to ASIC, mortgage brokers in Australia are required to provide you with a Credit Guide that details their commissions and fees before recommending any home loans to you.
If you’re concerned, ask your mortgage broker directly whether any other home loan options are available that will be more affordable and/or better suited to your finances, but would pay a lower commission to the broker.
If you’d prefer to avoid the risk of bias altogether, you may be able to find a mortgage broker that operates solely on a fee-based model. You’ll need to pay the broker a fee for their services, but you can be confident that you’ll receive fully independent mortgage advice. These brokers aren’t always easy to find in Australia, due to the prevalence of commission-based mortgage broking making fee-based operations less financially viable.
How to check your mortgage broker’s credentials:
To make sure that you find the best mortgage broker for your needs, and one who is reputable and reliable, check the following in advance:
- ASIC registration – Mortgage brokers are required to have the proper credit license registration with the Australian Securities And Investments Commission (ASIC). Mortgage brokers who are part of a franchise or aggregator may operate under this organisation’s credit license, rather than their own.
- Professional broking organisation membership – While it’s not a legal requirement that a mortgage broker be a member of a mortgage industry organisation, it is a requirement for many lenders and mortgage aggregators. There are two professional mortgage broking organisations in Australia: Mortgage and Finance Association of Australia (MFAA) and Finance Brokers Association of Australia (FBAA).
- External Dispute Resolution –Australian mortgage brokers are required to be part of an ASIC-approved an external dispute resolution (EDR) scheme, in case of any disagreements between borrowers and lenders. The two preferred EDR schemes in Australia are the Credit and Investments Ombudsman (CIO) and Financial Ombudsman Service (FOS).
- Professional indemnity insurance – Ensures your broker is financially covered in case of problems.
- Customer service and reviews – There’s nothing quite like word of mouth. Testimonials from previous satisfied (or less than satisfied) clients can give you a good indication of the kind of service that a mortgage broker provides.
Find in a mortgage broker in your local area
There’s nothing quite like local knowledge, whether you’re on holiday somewhere you’ve never been before, or are looking to buy a home or investment property in an unfamiliar suburb. It makes sense to look for a mortgage broker who’s familiar with the area’s local market, as they can inform you of any local quirks that you might miss if you don’t know the lay of the land. For instance, a mortgage broker on the Gold Coast would likely be more familiar with which home loans offers are better suited to investing in Southport holiday units than a mortgage broker in Brisbane.
As well as understanding the intricacies of the local market, local mortgage brokers are more likely to have relationships with smaller local lenders and mortgage providers in addition to the major players, providing you with additional home loan options that other brokers may not have had access to. Much like local brokers, these smaller local lenders may be able to offer you a personalised service that’s not just uniquely suited to the area and its market, but to your own financial situation.
Independent or franchise/aggregator mortgage brokers?
Some mortgage brokers are independent operators, with their own office, their own contacts, and nobody calling the shots for them. Others work as part of a larger organisation, such as a franchise group or mortgage aggregator. This can make an impact on the services these brokers can provide, and the benefits they can offer you.
Mortgage brokers that operate as their own boss may not always be able to put as many potential mortgage choices in front of their clients, but they are often able to provide a more personalised level of service that will leave a lasting impression. What’s more, these brokers are more likely to have relationships with the smaller local lenders who may be able to provide tailored home loans that ideally suit your financial requirements.
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A lender who operates as part of a larger group may have a larger support network to call upon, putting a wider variety of mortgage options in their lending panel so their clients can pick and choose from the available options. Access to specialised mortgage broking software can be another benefit from an aggregator, assisting brokers to sift through the available loan options and find one that’s right for the borrower. However, even this wider selection of lenders may lack access to some of the smaller and more specialised lender options, such as nonconforming lenders that provide bad credit home loans, or lenders that don’t pay commissions.
What about online mortgage brokers?
Traditionally, getting help from a mortgage broker means making an appointment to visit their office, whether that’s a one-desk affair nestled amongst the local shops, or a larger branch where several brokers operate.
But what if your busy schedule means you don’t have the free time available to make an appointment that fits your broker’s schedule? And what if you’re disabled, living in a remote area, or otherwise unable to realistically make the trip to see a mortgage broker in person?
As long as you have a phone and/or an internet connection, mortgage services needn’t be completely out of reach, thanks to online mortgage brokers. These businesses offer all the traditional mortgage broking services – information, assistance and access to lending options – but can do so without requiring a face to face meeting.
Online mortgage brokers are often available outside of regular office hours, so if you’re time-poor, you can schedule your home loan research and consultation for a time that’s most convenient for you. Some online mortgage broker services include home appointments, where you can organise for a broker to come and visit your home rather than you going to their office.
Just like when dealing with traditional brokers, you should still conduct some checks before entering an agreement with an online mortgage broker. Check their licenses, qualifications and certifications, and read user reviews and ratings to get a better idea of the level of customer service they provide.
Is my broker’s job done once I’ve signed on the dotted line for my new mortgage?
Not at all! In many cases, it’s only just beginning…
Many conscientious mortgage brokers will periodically check up on the clients they’ve successfully found home loans for, to find out how they’re going and make sure that their loan is still affordable and appropriate for their financial needs.
It’s often worth scheduling follow-up appointments with your mortgage broker every few years or so, to give your home loan a bit of a health check. Depending on your circumstances, you may find that sooner or later you’ll want to refinance your home loan, upgrade to a bigger place, or invest in a second property. When that time comes, your mortgage broker can help you find a lender, work out the savings or costs involved, negotiate the most appropriate terms, and guide you through the paperwork, all over again.