A mortgage broker acts as the go-between a customer and a bank when choosing and applying for a home loan.
They assess your financial needs, compare home loan products from several different lenders on your behalf, and manage the mortgage application process to settlement and beyond.
There's a lot that separates the great mortgage brokers from the not-so-great, so what should you look out for?
What does a mortgage broker do?
They assess your situation and compare loans.
Unlike a bank, where it can sometimes feel like you're just a number, brokers delve deeper into a client's situation and ask the right questions so they can find you the right solution.
The right lender may be someone other than the one offering a competitive interest rate.
It may be one that will approve your home loan, particularly if you've been knocked back for a loan in the past because you needed help to meet standard bank lending requirements.
This is where mortgage brokers shine because they can take your information, compare home loans from a range of different lenders, and provide you with a product recommendation that best suits your needs.
A bank will try to do the same thing, but they can only offer interest rates and products.
You're likely missing out on a great deal if you don't sit with a mortgage broker.
They make the home loan process easy.
Even if you already have a mortgage, applying for a home loan can be overwhelming and take time.
Banks aren't always the best communicators, and documents can seemingly vanish into thin air!
You can rely on a mortgage broker to handle every aspect of the application process, from managing your documents to communicating with the bank. They can help facilitate the process and serve as a single point of contact until settlement.
The great news is that organizing an appointment and simply conversing with a broker is free.
Why should you use a mortgage broker?
Because of their credit policy knowledge, mortgage brokers don't just make the home loan process easy and stress-free.
They can also find those 'secret' policy exceptions to get approvals for applications that are usually declined. This includes people with bad credit, unusual employment, or non-residents.
On top of that, the best brokers have strong relationships with the key decision-makers at the banks, meaning they can negotiate excellent pricing.
This can take the form of a sharper variable or fixed interest rate or waiving such fees as accounting-keeping costs and, in some cases, Lenders Mortgage Insurance (LMI).
Those looking to buy a home, invest in property, or have a high net worth and are concerned about mortgage risks may find value in seeking the advice of a mortgage broker.
Many Home Loan Experts' mortgage brokers have worked in the credit departments of many central banks and lenders, which means they understand the lending policies of many products back to front.
They know precisely what the bank wants to see in a mortgage application, so you have a better chance of getting approved the first time.
How much do mortgage brokers charge?
Most mortgage brokers are self-employed and work solely on the commissions they receive from banks when their customers settle on their home loans.
Yes, they are paid by banks, but they don't work for the banks.
Brokers only get paid when the home loan settles, so it's in their best interest to bring you the right loan for your situation!
Moreover, in most cases, their services are accessible to you as a borrower.
Aren't mortgage brokers dodgy?
In the lead-up and immediate aftermath of the Global Financial Crisis (GFC) of 2007/08, mortgage brokers came under much flack for being the "cowboys" of the financial services industry.
Although banks were the biggest culprits, some parts of the mortgage broking industry had a hand to play in the so-called "subprime mortgage crisis" that rocked the United States and the broader world economy.
Banks were paying ridiculous upfront and ongoing commissions and even offering kickbacks and incentives to brokers for selling particular home loan products that weren't in their client's best interests.
Although only a tiny percentage of the broking industry was involved, mortgage brokers have never quite been able to shake this perceived conflict of interest.
Following the GFC, the industry underwent severe changes, with many kickbacks and incentives banned, upfront and trail commissions reduced, and industry associations like the Mortgage and Finance Association of Australia (MFAA) and Finance Brokers Association of Australia (FBAA) pushing for professional standards to be lifted across the sector.
Thanks to the work of the Australian Securities and Investments Commission (ASIC), many dodgy brokers have been convicted as part of ongoing investigations or have left the industry entirely.
What kind of license should my broker have?
If you need clarification on whether your mortgage broker is legit, the first thing to ask for is their Australian Credit Licence (ACL).
As ACL-holders, brokers operate under the National Consumer Credit Protection Act (NCCP Act), which means they must recommend products that are 'not unsuitable' for you based on 'reasonable inquiries' of your financial situation. It's a legal requirement, which means you're protected as a consumer.
Mortgage brokers should either have their own ACL or be authorized under a license, typically through their aggregator (this is simply the wholesaler that supports the broker by paying their commissions and providing client management software).
Brokers under an aggregator offer more products and streamlined processes.
On a side note, going through a mortgage broker that operates under an aggregator is a big win for you as a customer because it means they have vital 'accreditation' with many banks, lenders, credit unions, and building societies (more on that below).
So, to check that you're speaking with a qualified mortgage broker:
- Check to see that they're registered with ASIC. You can also call ASIC's Infoline on 1300 300 630.
- Ask for a copy of their Certificate IV in Financial Services (Mortgage and Finance), the minimum requirement for a mortgage broker.
- Ensure they're registered with an ASIC-approved external dispute resolution (EDR) scheme such as the Australian Financial Complaints Authority (AFCA).
- Find out if they're a member of the MFAA, FBAA, or the Mortgage Industry Association of Australia (MIAA).
Once again, this is just the bare minimum.
Ideally, you'll want to speak with a mortgage broker with experience or at least undergone proper training.
Can they shop around with every lender in Australia?
Whether it's your first home loan or you are looking to refinance, shopping around for a home loan can be time-consuming and even spell disaster for getting approved.
That's because each time you apply for finance, whether a mortgage or a credit card, it gets recorded as an inquiry on your credit file. Having too many inquiries can see your application declined.
As authorized credit representatives, a broker can look at home loan solutions from various lenders without affecting your credit file.
They can then come back to you with at least 2-3 recommendations that you not only qualify for but match your goals, whether your goal was to get a firm interest rate, cash out equity, consolidate debt, or whatever you want to do.
However, it's essential to remember that a mortgage broker needs access to every bank, lender, credit union, and building society in Australia.
They can only deal with lenders they have accreditation with, which means they're authorized to send through applications and deals with the lender on behalf of a customer.
Brokers that have written a lot of loans (a high volume) through a particular lender will get upgraded to higher levels of accreditation, which means:
- They speak to the key decision-makers in the credit department to make policy exceptions.
- Speed up the application process, which is crucial if you're only weeks out from settlement.
- Negotiate exclusive interest rates that aren't advertised to the general public.
These brokers are treated like VIPs, and you'll see the benefit!
The reason is that brokers that operate through an aggregator have access to a more significant number of credit providers.
Again, it's not every lender in Australia, and be aware that some brokers may not work with lenders that do not pay commissions.
Lenders are usually carefully selected based on their credit policies. Still, it's essential to do your research and continually ask your broker questions about why they've chosen a particular product or lender over another.
Ask them what fees, if any, are to be paid upfront and find out what their commission rate is.
Can they help if I need business finance or a commercial loan?
Like other professions in financial services, there are mortgage brokers who have expertise in commercial and business loans.
They may have a particular accreditation with the commercial arm of a bank or lender. Still, depending on the complexity of your needs, it's always good to seek out someone with experience.
Beware of brokers that have yet to learn what you're talking about!
Do brokers provide financial advice?
No! Mortgage brokers only hold an Australian Credit Licence (ACL), so they can't provide you with financial advice.
For example, they can't tell you which locations are great to invest in or how to manage your self-managed superannuation fund (SMSF).
If you need financial advice, speak to a financial adviser who holds a current Australian Financial Services Licence (AFSL), or, for tax advice, talk to a qualified accountant.
What are the drawbacks of using a mortgage broker?
The most significant factor when choosing a mortgage broker is the vast difference in skills and experience between each brokerage.
Although a broker must meet a certain level of educational and licensing requirements, the broker's experience can mean the difference between mortgage approval and decline.
In some cases, you may be better off going with a bank directly rather than dealing with potential delays, mistakes in the application process, or a raw deal from an inexperienced broker.
Always check what their industry experience is and ask to speak with former or current clients about their experience.
The other problem is that brokers only do business with a select few lenders that they are "accredited" with and don't offer products from lenders Australia-wide.
Some brokers are more limited than others, so be wary of a broker that only deals with ten lenders as opposed to a broker that has upwards of 40 lenders on their panel.
More excellent choice means a better chance at approval and more opportunities to get a competitive deal.
Some final golden tips
- Speak to friends and family that have used a broker: Did they have a good experience? You may even ask the broker for the contact details of a few of their clients.
- Do some of your research: Since buying a property is one of the most significant investments that you'll ever make, research loan products yourself and always ask tough questions of your broker, including what their commission rate is.
- Consider getting a written agreement from the broker: It should detail how the loan works, what features are included, the loan term, the interest rate, and any upfront, ongoing, or penalty fees that may apply.
- Take your time: You should never feel like you're being pressured to sign on to a mortgage. You can always ask for more time to think about your decision. For instance, an online mortgage broker may be more convenient, but at what cost?
Do you want to speak to a mortgage broker?
As your financial and personal situation changes, whether due to having children, needing to renovate, or nearing retirement, you'll need a mortgage that evolves with you.
With a good broker, you should never feel like you're in the dark. From application, pre-approval, approval-in-principle (AIP or condition approval), and settlement, they should be there with you every step of the way and beyond.
Please contact us for more detailed information.
info@wealthyyou.com.au
☎️ (02) 7900 3288
⏲️ Monday to Friday, 9:00 AM – 6:00 PM
️ Ground Floor 3, 189 Kent St, Sydney NSW 2000
