AN increasing number of borrowers are seeking the services of a mortgage broker following revelations at the banking royal commission of shocking business practices among the major Australian banks.
Using a broker doesn’t necessarily cut the banks from the picture but it can provide reassurance that you’re getting the most suitable deal in the market.
There are three ways to get a loan: apply directly to your own bank; shop around; or a use the services of a broker.
A broker will save you time on research and the necessity of relying on a bank which will only provide guidance and information on loans in its own portfolio.
Mortgage brokers work on a commission basis which they need to explain to you. In comparison, a bank loan officer is an employee of the bank that would finance the loan.
In principle, the broker’s commission-only structure should ensure they focus on achieving the best outcome for the borrower, not the bank. Broker fees must be listed in a credit quote, which you should request before finalising any transaction.
One area where a conflict of interest can occur is in the fact that their commission comes from the lender. Lenders offer brokers varying levels of commission and an unscrupulous operator might put a favourable commission ahead of your best interest.
The way to ensure this doesn’t happen is to discuss your needs with more than one broker. Good practitioners will have a large network of lenders and understand the relevant loan products.
They should be able to explain the obligations of each product and assist in comparing the benefits of fixed-rate mortgages against adjustable-rate mortgages. They will also be able to provide advice on an appropriate length of a loan, such as a 15-year or 25-year term.
When comparing brokers, notice if they genuinely listen to your needs or try to force fit you into a loan that they have pre-determined.
Once your needs are understood, a mortgage broker will seek interest from several lenders, negotiate an interest rate based on their own buying power, or the buying power of their franchise, and then close the deal on your behalf.
They may also be able to find a lender who will accept a loan application that a major bank has refused. Sometimes, this can involve an additional fee, especially where a poor credit or poor income records exist.
A mortgage broker should
- Be the honest middle-man between the homeowner and the mortgage lender
- Listen to your needs, not force-fit you into a loans product
- Have access to a wide variety of financial products
- Negotiate the best available interest rate directly with the lender, leveraging their own buying power
- Advise on a suitable repayment period to meet a borrower’s lifestyle
- Prepare the loan application, financial documents and issue mortgage pre-approvals
- Be a good resource on the best place to find finance if your credit rating or income records are imperfect
This article is of a general nature. Readers should seek professional advice.