What to look for when choosing a mortgage broker
With so many lenders and loans to choose from, finding the right product can be overwhelming.
For that reason you might consider using a mortgage broker to help you narrow your choices.
"If you don't have a good knowledge of the mortgage and finance industry, it can be difficult and time consuming to locate an impressive deal without the guidance of a broker," says Bessie Hassan, of finder.com.au.
A big advantage of using a broker is being able to tap into their experience. A broker deals with the ins and outs of applying for loans every day, so that can be a big advantage for first-home buyers who have never done it before.
The second key benefit is the access to lender products. A broker could have hundreds of lender products in its books and help you find the one that suits you.
Mortgage brokers are familiar with the nuances of the industry and if your situation is unusual they may be able to suggest a lender more likely to say yes.
For example, they may be able to direct you to lenders where your credit history won't impact your ability to take out a mortgage, says Hassan.
Another plus for using a broker is that they do all the hard work for you. A broker will handle most of the process requirements of the loan, including data analysis, collation and submission of supporting documents through to settlement, hopefully making the experience less stressful for you.
So while there is no doubt using a mortgage broker has its advantages, the hard part can be finding the right one.
John Flavell, CEO of Mortgage Choice, recommends mortgageandfinancehelp.com.au, which will help you look for a broker who is accredited with the major industry body.
Hassan's tip is to ask around in order to make an informed decision.
"Seek advice from friends and family who've used brokers before and research their recommendations," she says.
Once you have a shortlist, meet them to discuss your situation.
"Ask questions that will provide you with an indication of their personality and professionalism. For example, 'How will you determine which loan is best suited to my situation?' and 'How long have you been in the mortgage broking industry?' " suggests Hassan.
It's also a good idea to ask if there are any key challenges with your lending requirements and, if so, how they suggest you manage them.
You should also ask yourself whether you feel comfortable with them, adds Hassan. Think about whether they are genuine and enthusiastic for the right reason or are simply seeking quick commission.
"You also want to make sure that your broker takes an interest in your particular situation and is asking you the right questions. A good broker will ask you questions about your goals and needs and then work with you to formulate a plan of attack," he says.
You should also find out how a broker is being paid.
"A broker's fee or commission for arranging a loan is often paid by the credit provider whose products they sell," says ASIC website MoneySmart.
"Different credit providers pay different commission levels. This can potentially influence what loans the broker recommends to you. Sometimes a broker will charge you a fee directly instead of, or in addition to, the credit provider's commission."
ASIC conducted a review of mortgage broker remuneration earlier this year.
After analysing information on 1.5 million home loans and data from 19 lenders, 14 aggregators and 44 brokers, it made six recommendations, including making changes to standard commissions and moving away from bonus commissions and "soft dollar" commissions, or benefits, which increase the risk of poor consumer outcomes. These changes should hopefully reduce any conflicts of interest.
Of course, not all brokers will make choices based on how much they are paid so you should find a broker who has your best interests at heart.
Find out their fee structure and compare fees charged by others to make sure you get a good deal.
It's vital to make sure that your broker is licensed.
"It's not uncommon for scam artists to pose as mortgage brokers in attempts to steal your financial security," says Hassan. "Check their accreditations and qualifications and ensure that the broker holds an Australian credit licence or credit representative status, and is a member of the Mortgage Finance Association of Australia who complies with its code of practice."
Look at how many lenders, and which ones, are on the broker's panel.
"It is important for your chosen mortgage broker to have access to all of the main lending institutions, including the big four banks, second-tier lenders and credit unions," says Flavell.
"The more robust your mortgage broker's lender panel is, the more options you will have and the more likely you will be to find the right loan for your needs."
You should also ask for referees. They should be willing to provide other happy clients as references.
Even if a broker recommends a particular loan it still pays to do your own research to check if it is in fact a good deal and no more than what you'd be paying if you went to the lender directly.
That's where sites such as our own come in handy as you can get an idea of the rates available. Also check out RateCity, Canstar and Finder.
Questions to ask a broker
1. Why should I use a mortgage broker rather than going straight to the bank? 2. How much experience do you have as a broker? 3. How do you decide which loan is best suited to my situation? 4. What commissions do you get paid for writing my loan? 5. Do you offer a range of different lenders?