Why a mortgage broker has hidden value for borrowers

There's a very simple reason why brokers and aggregators have dramatically lifted their share of the mortgage market from 25% 10 years ago to 42%. They know things that home buyers don't!

I'm not talking about who's got the cheapest home loan or the best three-year fixed-rate investment loan. You don't need a broker to answer these questions - a few minutes on Google will sort that out.

Although it is worth noting that some brokers do get access to better interest rates and more flexible conditions than are advertised by lenders.

What a good broker knows that you possibly don't are the ins and outs of each institution's lending policy - which may prove invaluable in getting your application over the line.

Let's say you want to buy a unit in a four-storey block.

According to Australia's largest mortgage broker, Mortgage Choice, some lenders will give you a flat "no".

"Some lenders are now veering away from high-density units," says Jessica Darnbrough, of Mortgage Choice. "The benefit of going to a broker is that they know which lenders will lend and which won't."

Mortgage broker 1300HomeLoan says a good understanding of credit policy and a broad lender panel give its clients the best chance of getting the loan they want.

"Whether they're a cash-strapped single parent or an investor with complex structures, we know which lender they would have a better chance of getting their loan approved."

Then there are all the tricks of the trade that only come with years of experience. Being able to set up your loans in the best possible structure can deliver some serious interest savings.

Take this tip from mortgage broker Jane Slack-Smith, of Investors Choice Mortgages.

We all know that offset accounts and redraw facilities are a great way to reduce your loan interest and improve your cash flow, but they are generally limited to variable loans.

What happens if you want the security of the low five-year, fixed-rate loan and the benefits from your savings, bonus or cash windfalls in the next five years?

Slack-Smith says you can have both, but most people are unaware of how to go about it.

"Instead of fixing the entire loan you split it into several loans," she says.

"That's because some lenders only allow a maximum of up to a $30,000 redraw on each split. So by splitting, say, a $500,000 loan into five lots of $100,000 you give yourself the option of having $150,000 in redraw as opposed to just having a $30,000 maximum redraw facility. It's not a well-known option, but for long-term loans this is great!"

Of course, you may be up for five lots of account fees, but they would be offset by the interest savings if used correctly.

For first home buyers borrowing over 80% for an off-the-plan purchase, Slack-Smith advises you to look for lenders - such as ING -that reduce their mortgage insurance premium if the value of the property increases between when you sign the contract and when you settle.

When it comes to saving on lenders mortgage insurance (LMI), mortgage broker Smartline advises its clients to try to keep their lending ratios just under the next pricing hurdle (for example, 90% instead of 90.91% or the loan amount $495,000 instead of $500,000).

"A loan of $495,000 against a purchase property of $550,000 has an LMI cost of $10,359. A loan of $500,000 against the same value property has an LMI cost of $13,453.

An extra $5000 deposit would save $3000 in LMI, which they would also end up paying interest on," says Smartline's Peter King..

The value of mortgage brokers clearly lies in their experience of structuring loans and their insights into lenders' policies.

If your situation is straightforward you may not need help. Brokers get paid by the lenders they refer you to and because of this they don't refer loans that don't pay a commission.

This means you could miss out on a cheap deal. But price isn't everything and with the right features you can still save plenty.

If your situation isn't so cut-and-dried, a broker can go a long way to getting your application across the line.

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