Tips on Getting the Best Deal From a Mortgage Broker
You may be wondering why you need these tips – because aren’t all mortgage brokers in it to get you the best deal? Well, as with any industry, not all brokers are created equally, and some can offer better service and advice, more unbiased recommendations and lower or zero fees.
Mortgage brokers can also be a misunderstood part of the home loan industry and everyone has heard their own version of the services a broker provides and how they are paid. However, when you understand these aspects of the industry you can get the best deal whether you choose to go straight to the lender, or work with a mortgage broker.
Applying for a Loan with the Lender
With mountains of home loan information available online, you can make your own comparisons of home loan products to a certain extent, without the need to consult a broker. You may even approach your existing bank or financial institution and in some cases they can offer you a great home loan deal if you have savings and transaction accounts, credit cards or personal loans with them already.
However, the comparison process does not stop there, because the point of contact with your lender is very important. For instance, if you aim to save yourself some time by calling the lender, remember that you don’t really know who you’re talking to. Therefore, make sure to ask the person on the other end of the line about their qualifications and experience, and how long they have been in their role. Also make sure you have their full name and direct extension number so you can talk to the same person when you call back.
If you want to visit the lenders on your short list in person you can go into a branch, but aim to deal with just one person here too, and someone who has all of the correct information, and the authority to approve your loan. With approval directly from your lender you could have your funds approved in the same day so you can go out with confidence to purchase your dream home. This can be a time saving process when compared to a broker who does not have the authority to approve a loan and instead submits your application to a lender who then processes your details and checks your credit file.
While you might prefer to deal directly with the lender and appreciate a speedier loan approvals process, remember that the lender can only recommend their own loans, which may not always be right for you. Even when you shop around, are you asking each lender the same questions and are they making the same assumptions? If you come across a new question half way through your comparison you will have to go back to the beginning of your list to ask the first lenders this question too.
When comparing home loans yourself there is a lot of information out there, and you may feel full of questions. At the same time, you don’t know what you don’t know and you can still miss an important question.
Working with a Mortgage Broker
When you go to a mortgage broker they will ask you about your financial situation and work hard to understand your needs, goals and limitations, with questions which go beyond those asked by the banks. A mortgage broker also has access to a wide range of home loans from a range of lenders, and will be able to present several options, all of which meet your requirements, and you can choose the one you want. Mortgage brokers are also familiar with each lenders different eligibility criteria and policies and so their questions will ensure you are matched with the loan which suits you.
A broker is also in tune with the industry and aware of each lenders eligibility criteria and how they differ at the time. Therefore, while you may apply through a lender and be denied, this doesn’t mean you can’t get a loan anywhere, it just means you don’t meet the criteria at the time. Instead, a mortgage broker minimises the risk of this embarrassment by understanding these intricacies of the industry.
Make sure your mortgage broker only submits one or two applications, and don’t sign too many applications with the broker at one time. When you apply for multiple home loans all at the same time this can affect your credit score and the only reason a broker should have you apply with more than one lender is if there are valuation or policy issues, and this problem should not be repeated.
While the services of a broker can be a dream come true, they can turn into a nightmare if you choose the wrong broker. Therefore, make sure you compare the qualifications and experience of brokers in your area, and ask friends and family for recommendations to get your comparisons started. You should also make sure your broker has experience in your type of home loans, for example if you are self employed you will need a broker with experience in low doc loans, and a different broker may provide a better service for a commercial, residential or investment loan.
A reputable mortgage broker will have licenses, insurance and credit checks approved as part of the process of becoming a broker and all brokers must have completed a Certificate IV in Financial Services Mortgage Broking. Also, from 2010 there is national legislation in place to regulate brokers across Australia in the same way where brokers are required to disclose the amount of commission they are paid.
Your broker should also be able to tell you what percentage of their clientele are repeat customers and this should show you the customer satisfaction levels. If the broker can’t tell you this percentage, ask them why and find out more about what they’re really offering.
Know About Mortgage Broker Commissions
The commissions brokers are paid by lenders is a point of contention for the industry as the facts are often misconstrued in place of more sensational myths. However, using a mortgage broker should not cost you more in the long run because of trailing commissions, if you have sought out a reputable and experienced broker who has gotten you the best deal.
While the brokers earn their income from the lenders on their lending panel, and are paid an upfront commission for signing you and a trailing commission for the life of your loan, however, with residential home loans and mortgage brokers, these costs are not usually passed onto you. In the case of commercial or business loans, often these are the costs of doing business, but as a home buyer you can get a better deal.
Home loan lenders actually benefit from being able to sign up loans through brokers because they are incurring huge expenses to maintain their branches, run advertising campaigns and keep their staff informed, all to service and attract customers who will inevitably still shop around. However, when lenders can sign up customers through a broker, it actually costs them less.
Over the last 12 months many residential lenders have cut the amount of commissions they pay their brokers by up to 40% while the brokers are still doing the same job. As a result some brokers will charge a small upfront fee. These costs will vary depending on your broker, but you can ask them directly what you will be paying for their services.
A broker will typically earn 0.55% of the loan amount as an upfront commission from the lender, plus a trailing commission of around 0.165% of the loan amount which they get paid monthly. This trailing commission will go down for the broker, because it is calculated on your loan balance remaining.
When you ask your broker how much their commissions are, this should not be a deciding factor in choosing the right broker. A good mortgage broker will rely on their reputation and repeat business and this gives them the opportunity to earn extra commissions from more clients, rather than making large gains on just your loan.
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