Can a mortgage broker really simplify choosing a home loan?
About 2600 mortgage products compete on the market for your attention. That's why finding the home loan just right for you can be a gruelling exercise.
And it is why most borrowers take a short cut and go straight to a bank or a mortgage broker to help them navigate their way through the product range.
But if you take this route you are likely to be offered a product from a very biased product range: either a mortgage designed by the bank (it won't offer you any other mortgage provider's loan); or a loan from a range of providers that a mortgage broker is licensed to sell (they earn a commission and may favour the loan paying the highest commission).
Now an online service, Unbiased Mortgage Brokers (UBM), enables borrowers to not only filter those 2600 mortgages but also to save on costs by redirecting trailing commissions - often paid to brokers through the life of the loan - back to you.
The company claims this can cut commission costs by as much as 15%.
How it works
Essentially a program on a smartphone, tablet or computer filters the loans for you via an auction-like mortgage contest, enabling all lenders associated with Unbiased Mortgage Brokers to bid directly for your business.
UBM's software uses algorithms that are constructed to help the borrower find the best loan for them at the lowest cost.
Either through the online InstantCheck or via a phone consultation, you list the features you want from your loan.
Let's say you are looking for a fixed-rate loan over a 10-year term with an offset account that is portable. These required features are mapped against all products.
The rating system then kicks in and eliminates all loans that don't offer the features you want.
Borrowers are assisted by an independent mortgage expert to help them select the best product from the filtered list and proceed with an application.
For those already paying off a mortgage, the system will clearly identify the financial savings and other features that beat their existing arrangement.
How much it costs
The big advantage of this product is that, while there is an upfront commission, there are no ongoing or trail commissions - that is, those paid every year to the mortgage broker, which can amount to $7000 over a five-year loan and can exceed $25,000 over a longer term.
Costing takes into account not only the loan amount, term and repayment type but also the exit period (which is when you think you are likely to refinance).
This aspect is important as loans individually can become cheaper or more expensive over time and that affects their relative cost rating.
That means a 25-year calculation (as used with most comparison rates) is less relevant when you are more likely to refinance between three and seven years into a loan term.
The process delivers a "total individual cost" (TIC) and is a personalised cost calculation taking into account not just your situation but other potentially big-ticket items such as lenders mortgage insurance, fee provisions and rebates, none of which is included in a usual comparison rate calculation.
Lenders typically pay brokers 0.65% to 0.7% in upfront commission but it can reach as high as 1%. Lenders then pay brokers a monthly trail commission for the life of the loan - it's typically about 0.2% a year but can reach 0.3%.
Unbiased Mortgage Brokers will charge a one-off service fee of 0.65%, which you can deduct from any commission rebates you receive from the lender.
Each deposit incurs a transfer fee of $1.50. If you want to connect with a mortgage contest bidder and avoid the UBM advice fee, you can visit flongle.com.au and run your own mortgage contest for $389.
Unbiased Mortgage Brokers
- It can save you thousands of dollars by discovering the best deals for you from up to 74 lenders and more than 50 brokers.
- Upfront fee can be high ($2600 on $400,000 loan). You can avoid this fee with the rebates, but these are only paid monthly. So if you want to refinance early, you may not claw it all back.
- Some home loans don't pay trailing commissions so you'll have to cough up the full establishment fee. You'll need to research the cost of your loan from other providers to check how good the deal is.
Effectively, UMB is a rebate service provider. If there are trailing commissions to be rebated it's worth doing the exercise. There were no reviews of the product on its website at time of writing.