What you need to know about mortgage brokers
With interest rates remaining steady, and you’re thinking about refinancing to buy an investment property, ideally you get pre-approved for a mortgage before you start looking. This will give you a better idea of how much you can afford to spend and will make the property buying process go more smoothly.
But with all the options around, where do you start looking?
You can go to your bank, or current finance provider, but it’s always good to shop around, and one way you can do this is to use a mortgage broker.
Mortgage brokers often have access to financial providers who provide loans for people who are self-employed or who don’t have a traditionally regular income.
What do brokers do?
A mortgage broker is a licensed professional who helps you find the best mortgage loan for your needs. They can compare rates from multiple lenders and help you negotiate the terms of your loan.
- Manage the paperwork
They help you gather the necessary paperwork and submit your loan application to multiple lenders.
- Fully explain your options
As well as presenting you with a number of options, a good broker will explain the pros and cons with each loan, and highlight the risks and benefits.
They shouldn’t pressure you into making a decision and they will explain the small print.
Where to find a mortgage broker
You can ask for referrals from family, friends or colleagues who have recently bought a property and you can also search online for mortgage brokers in your area.
The Mortgage & Finance Association of Australia (MFAA), the peak national body for professional mortgage and finance brokers, mortgage managers and aggregators also has ‘find a MFAA accredited broker’ function on its website.
Questions to ask
- What are your credentials
A good broker should have their own Australian Credit License or be qualified to act as an authorised credit representative; mortgage brokers need to have a Certificate IV in Finance and Mortgage Broking before they start working.
The Australian Securities and Investments Commission says Australians should always check the broker or the company they are dealing with is licensed – search ASIC Connect’s Professional Registers to ensure your provider is legitimate.
- What is your ownership structure
Some brokers are owned or part-owned by big banks, and these commercial ties may distort the quality of advice and incentivise brokers to sell you a particular loan.
For instance, Aussie Home Loans are owned by the Commonwealth Bank (CBA); and according to data provided by the broker to the Hayne royal commission favoured its owner’s mortgage products, sold under a number of different brands and funnelled two out of five mortgages to the bank.
- How many lenders are on your panel?
This will let you know how many loans a broker can look at for you – some have lots of options but others may have a very limited selection.
- How are they paid?
Brokers generally are on commission, and legally they have to tell you what commission they are on and how it is paid.
There are two types of commission:
1. Commission upfront: This is a percentage of the total value of the loan; the larger the loan, the greater the broker’s commission. Be mindful of a broker recommending a larger loan than you’ve budgeted for and ask them to explain their reasons.
2. Trail commission: In this type of commission, brokers continue to receive over the life of the loan. This means you may want to keep checking in with them to check you’re still on the best deal.
We also suggest you check out two to three different brokers; You want to find a broker who you are comfortable with, and be confident they understand the industry, know their products and listen to you.
Get a sense of how well you communicate with the broker and whether you feel comfortable working with them. Trust your gut. If you don’t feel comfortable working with the broker, don’t use them.
Want to know more? Get in touch!
Our aim is to give you information to help you make informed choices. We’re always here for an informal chat to answer questions.
Find out more about our property management services and call us on 02 4956 9777, send us an email to mail@newcastlepropertymanagement.com.au or pop into our Cardiff office.
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