Using mortgage brokers

How to avoid the traps and get the most from a mortgage broker when shopping around for a home loan.
 
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  • Updated:21 Apr 2008
 

01.Finding a good mortgage broker

House

With borrowers facing a bewildering choice of home loans, it’s not surprising many turn to mortgage brokers for assistance. If brokers’ advertisements and claims are to be believed, they’re the answer for anyone seeking a loan to suit their circumstances.

The use of brokers is increasing and they can provide consumers with worthwhile services. Mainstream brokers can explain your options, match your needs with lenders’ products, and assist with paperwork and loan application forms.

Use these tips to ensure you get value from a mortgage broker:

  • Do your homework: research the market first — you’ll be better able to assess the value of recommended loans and quality of broker advice. See our report How to choose a home loan.
  • Prepare the questions you need the broker to answer so you can make an informed decision. Then phone several brokers to see what they can offer.
  • Check the lender's choice: check what lenders are on the broker’s list and ask whether any are usually preferred — and why.
  • Watch the fees: don’t pay up-front fees to brokers before credit has been arranged.
  • Check the commissions: find out how and what brokers will be paid for arranging your loan, including ongoing trail commissions. Know there may be conflicts of interest. Commissions must now be disclosed by brokers in NSW and Victoria, so make sure you get a written Finance Broking Contact.
  • Explain your needs: make sure the broker clearly understands your present financial situation and your borrowing needs.
  • Your options: ask the broker to explain different mortgage options and why any recommended loan matches your financial needs.
  • Find out the refinancing costs: ask for full details of refinancing costs and make sure they don’t outweigh the benefits of switching your mortgage. Check all calculations — brokers can make mistakes. Check our report on refinancing.
  • Ask about rebates: some brokers refund part of their commission. One shadow shopper in our 2004 test asked four brokers if they’d do this. "They all declined," he said. "However, my existing broker refunds half the up-front commission after settlement, which makes it more attractive to consider switching and passing on the business to him."
  • Check their credentials: ask brokers to detail their qualifications and experience. You should also check if they are a member of the Mortgage & Finance Association of Australia (MFAA), the peak body for mortgage brokers in this country. MFAA members are required to be members of the Credit Ombudsman Service for consumer complaints, as well as being subject to the MFAA's Code of Practice and Disciplinary Rules. This should provide consumers with an extra degree of protection.
  • Ask about insurance: find out whether the broker has professional indemnity insurance (the MFAA requires this for members).
  • Get details in writing: ask for written reasons for recommendations, and details of commissions, fees and products. The broker should be able to explain why the recommended product is the most suitable for you. Finance Broking Contracts in NSW and Victoria should explain these reasons in writing.
  • Don't rush: don’t sign anything you don’t fully understand, and if you’re in doubt, get independent legal advice.
  • Don't overdo your loan applications: making too many can impair your credit rating.
  • Find out how to complain: check whether the broker has a complaints process and is part of an external dispute resolution scheme, such as the Credit Ombudsman or Banking and Financial Services Ombudsman schemes, which are both approved by ASIC.

Please note: this information was current as of April 2008 but is still a useful guide to today's market.


 
 

 

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