01.Finding a good mortgage broker
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.
Mortgage brokers now write just over half of all new loans, and they can provide useful services. Mainstream brokers can explain your options, match your needs with lenders' products, and assist with paperwork and loan application forms. "A top broker would be someone who would be more an educator or adviser than a sales person," says Stephen Hale, spokesperson for the Mortgage & Finance Association of Australia (MFAA).
MFAA brokers have to adhere to higher education standards and ethical standards aligned to government requirements. One of those standards requires them to disclose the commission they're receiving from the lender.
The up-front and ongoing commissions a broker receives can be two per cent if you stay with the same loan for five years. For example, around $10,000 for a $500,000 loan. The commission the broker receives can be influenced by factors such as the:
- lender, as some lenders pay higher commissions than others
- loan type as lenders may pay higher commissions for different loan products. For example, they may pay a higher commission for a fixed compared to a variable loan
- amount of the loan, as the commission is usually a percentage of the loan amount.
Hale says generally brokers are unbiased, but others say that commissions can cause conflicts of interest. "Commission structures ensure if it makes more money for the lender, it makes more money for the broker too," says Michael Lee, founder of mortgage advice service Flongle.
Brokers usually only have access to a panel of lenders, which may not include online and mutual lenders as they tend not to pay commissions. Brokers may also restrict themselves further by using only a handful of lenders on their panel for the bulk of their business. Those lenders may not offer the best loan for you.
"The law only requires your mortgage broker to recommend loans that are 'not unsuitable'. Loans don't have to be the best deal, they do not even have to be a good deal," warns Lee.
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 recommended loans and quality of advice.
Prepare questions for the broker. Then phone several brokers to compare what they can offer.
Check the lender panel. Check which lenders are on the broker's list and ask whether any are usually preferred – and why.
- Check commissions. Find out how and what brokers will be paid for arranging your loan, including ongoing commissions.
Explain your needs. Make sure the broker clearly understands your financial situation and your borrowing needs.
- Understand 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.
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 credentials. Ask brokers to detail their qualifications and experience. Check if they are a member of the Mortgage & Finance Association of Australia (MFAA), the peak body for mortgage brokers.
- Get details in writing. Ask for written reasons for recommendations, and details of commissions, fees and products.
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 the broker's complaints process and make sure they are part of an external dispute resolution scheme, such as the Credit Ombudsman Service or the Financial Ombudsman Service, both approved by ASIC.