Purchasing a new home is an important personal objective that will have long-term implications. A mortgage broker can play a pivotal role in helping you to secure the right home loan. So, it’s essential to choose someone experienced and trustworthy.
The mortgage industry in Australia is vast, with thousands of brokers offering their services to home loan borrowers. So, how do you know which mortgage broker is right for you?
Here are 15 questions to ask a mortgage broker to help you make the best decision for your home loan.
What is a Mortgage Broker?
A mortgage broker is a financial intermediary or go-between who deals with banks or other lenders on your behalf to arrange a home loan. Their role is to act in your best interests and find the most suitable loan product that matches your borrowing power and financial circumstances.
After helping you select the best deal, a good mortgage broker may also help you with the application process and manage the process through to full approval and settlement.
Usually, brokers aren’t paid by the borrower. Instead, lenders pay a commission to the broker on the loan settlement.
However, sometimes a broker will directly charge you a fee instead of, or along with, the lender’s commission.
Why Should I Use a Mortgage Broker?
Home buyers, especially those new to the property market, are often unsure whether to use a mortgage broker. While it’s a personal choice rather than a rule, there are some advantages to using a mortgage broker.
- Industry Knowledge: Researching endless loan options and different lenders to find a broker suited to your financial situation can be time-consuming. Mortgage brokers typically have all the information at their fingertips. Furthermore, new loan products get launched as market trends change and policies vary. With their comprehensive insights, brokers can help you save time and money in finding the right mortgage and navigating complicated processes.
- Experience and Efficiency: Mortgage brokers handle your application process paperwork. This can be a significant advantage if you’re busy with work and family commitments. They know the nitty-gritty and can often get things done more quickly than you.
- Continuity: Whether it’s the only mortgage you’ll ever take or you’re a multiple-time borrower, working with a mortgage broker will benefit you from the sense of continuity. Owner-operators run most storefronts across Australia. So while a bank manager or a consultant may switch jobs or be reassigned, you’ll most likely deal with the same mortgage broker for the entire process.
- Specialist in a Particular Product: Various types of brokers specialise in their niches. Generally speaking, if you’re taking an investment property loan, you would want to use a different broker than when buying your owner-occupier home.
What Do I Need to Know Before Seeing a Broker?
Before seeing a mortgage broker, you should have a clear picture of your financial situation, the property type you wish to purchase, your budget, the purpose - whether owner-occupier or investment and/or if you are looking to refinance an existing home loan.
You should also consider your repayment plans. If you intend to pay off your loan as quickly as possible, you may want a loan that allows extra repayments. Alternatively, you want to keep your mortgage repayments as low as possible.
Moreover, it would help if you also had a good idea about which area or neighbourhood you want to buy in. Once you know your property goals, you can decide if a mortgage broker is knowledgeable and can help you meet your specific home loan needs.
Essential Questions to Ask Mortgage Brokers
If you’re considering using a mortgage broker, here are 15 essential questions to help you decide if they’re the right fit.
1. What Are Your Credentials and Experience as a Broker?
A broker’s credentials and experience form the backbone of their service. When you ask your mortgage broker for this information, you should be able to find out if the broker has a valid license as a standalone credit professional or is an authorised credit representative of a big mortgage firm.
You will also know how long they have been in the business and how they earn their commissions. In addition, you should probe and get answers that help you understand their network and nature of association with reputed lenders, i.e. are they independent or influenced by certain lenders?
Based on the response to this question, you’ll be able to shortlist a few options and make an informed decision.
2. Are You a Member of the Finance Brokers Association of Australia (FBAA) or the Mortgage Finance Association of Australia (MFAA)?
Moneysmart. gov advises prospective home buyers to find a licensed mortgage broker through a mortgage broker professional association. The reason is that licensed mortgage brokers are bound by specific rules and regulations to act in your best interests when recommending a credit product.
Ask your broker directly if they have an Australian credit licence. Alternatively, you could contact a professional body such as the Finance Brokers Association of Australia (FBAA) or the Mortgage Finance Association of Australia (MFAA). They can help you determine if your broker is licensed and/or connect you with someone who meets the criteria.
Where there are several accredited brokers you can choose from, it’s advisable to select from this pool rather than risk working with an unlicensed one.
3. What Lenders Do You Have on Your Panel?
Access to a wide choice of lenders can help you find a suitable loan at a low-interest rate. Asking the broker how many lenders they have on their panel will help you understand the range of options you can choose from.
You should check if your broker is well-versed in the features of each. This will help them offer a loan option that suits your financial situation.
In addition, you could ask about the combination of bank and non-bank lenders on the panel. This can also provide insight into the diversity of products available to you.
A particular credit provider may often have an exclusive deal available only through mortgage brokers. At such times it may be better to apply through that broker.
4. How Do You Get Paid?
While most mortgage brokers receive a commission from the lender, some are paid standard or higher fees for providing certain loans. So you don’t pay the broker anything.
But some brokers may charge you a fee instead of, or as well as your lender’s commission.
When you take out a loan, it’s best to seek clarity on this aspect at the outset. In addition to their fees, ask your broker about the lender’s charges and a breakdown of other costs. For example, application costs or Lenders Mortgage Insurance (LMI).
A simple, straightforward explanation will help you know exactly what to budget for.
5. Which Loan Features Are Suitable For Me?
After your broker suggests potential loans that match your personal objectives, check if the loan is a variable or fixed-rate home loan.
An offset account may enable you to use your home loan like a regular transaction account. Depending on your deposits, this can help lower your interest repayments. Likewise, redraw allows you to make extra repayments confidently while knowing you can still access the funds when needed.
Every time your broker mentions a new feature, ask for a breakdown of the terms, costs and potential benefits.
6. What Specific Loan Type Best Suits My Interests?
It can be challenging to identify a credit product with loan features, processing time, full doc or low doc suited to your situation. In addition, the fixed rate, variable rate or split-rate options, and the interest-only repayments period, can be confusing to understand.
Licensed brokers are usually under obligation to act in your best interests. You can discern if they prioritise commission over your interests from how they answer your question.
A thoughtful and thorough explanation of the different factors affecting a suitable loan type, for example, your employment status, deposit amount or borrowing capacity, indicates that the broker is in tune with your circumstances. In addition, it will help you ensure that your broker is not just rushing you through the process.
To compare, you could also ask for a few more loan options, including the one with the lowest overall costs.
7. What Is the Interest Rate on the Loan?
You would naturally want a low-interest loan and the best deal. But sometimes, the lowest interest rate can work more expensive in the long term when you consider all the extra fees.
Further, if you choose a variable interest rate home loan, your interest rate will most likely fluctuate during the loan term. On the other hand, a fixed-rate loan will ensure that your interest repayment is stable for a longer period and may end up less expensive.
Ask your mortgage broker to break down and compare interest rates, so you can make an informed decision about what’s best for your circumstances. Enquire about the comparison rate, which includes the interest rate and other fees and charges, to give you a clearer idea of the loan’s actual cost.
8. Will this Interest Rate Change Before Settlement?
You want to be sure about the interest rate you’re paying on your home loan, as this will significantly impact your monthly repayments. Asking your broker this question will help put your mind at ease and avoid nasty surprises. In addition, it will allow you to negotiate a better rate if the answer is yes.
Also, be sure to ask about any fees or charges that could apply if the interest rate does change. Finally, if you no longer feel confident about that particular lender, you can walk away without any financial penalties at this stage.
9. Is it Possible to Fix the Interest Rate at a Future Point?
As happens with most home buyers, your financial situation may change over the life of your home loan. For example, you may get a promotion or a pay rise, which allows you to make higher repayments. Or, you may have children and need to make some lifestyle changes.
Whatever the case, you must know that you have options and flexibility regarding your home loan. So, be sure to ask your mortgage broker if it’s possible to fix the interest rate at a future point. This will give you some peace of mind, knowing that you have the option to lock in a low rate if rates happen to increase.
You should clarify with your broker if your lender will levy extra charges if you switch to a fixed rate at a later stage.
10. What Is the Comparison Rate on the Loan?
Lenders must legally display the comparison rate alongside their advertised interest rates. It helps you compare home loans by factoring in the application fees and other charges you may incur throughout the loan and the interest rates.
Request your mortgage broker to share the comparison rate for the home loan they recommend. You may find out that a loan with a lower interest rate is more expensive when fees and charges are factored in.
11. What Documents Do I Need Ready?
When applying for a home loan, your relevant credit provider will want a range of documents to substantiate your borrowing capacity and ability to repay your home loan. Request your broker to give you a formal checklist of documents you need to organise.
This will help you start collating documents such as bank statement copies, tax returns, monthly expense details or assets and liabilities to submit along with your loan application.
Suppose you’re self-employed, a contract worker or have recently started a business. In that case, you may not have salary slips or two years of tax returns. Inform your broker about the situation and request help finding an ‘alternate documentation’ credit provider who’ll finance your property purchase per your circumstances.
12. What Fees Are Involved in the Loan?
You may not have to pay the lender’s fee. However, you’ll still have to pay other fees when applying for a home loan.
Application fees, ongoing monthly fees, settlement fees, once-off package fees, and rate lock fees are associated with a mortgage. Furthermore, depending on your deposit size, your lender may also insist on LMI.
Get your mortgage broker to provide a detailed summary of the entire fee structure and how much each will work up to. And seek clarifications on any fee component you don’t understand.
As a precautionary measure, it’s advisable to double-check online if details are available. This question is a top priority because it will help you understand if you can meet the costs of a home loan application.
13. Is there a Fee for Additional Repayments?
Extra repayments can help you get homeownership quickly while saving you thousands in interest if you pay your mortgage off sooner.
Typically this feature has been available for fixed loans in the past, but recently this has been possible on a few fixed-rate loans.
Moreover, if you have access to redraw, you can withdraw your additional repayments or lump sum payments at any time. This helps you make additional repayments with extra confidence, as you know that your money is still available when you need it.
Also, keep in mind that where there are no extra fees for additional repayments, there may be a cap per calendar year on how much additional money you can put towards your loan.
If you’re looking to make extra repayments on your home loan, check to see if any fees are associated with this feature. It’ll help you make informed decisions about your repayments.
14. When Can I Expect to Settle on the Loan?
Typically the home loan settlement period may vary across states and territories. However, it usually takes 4 to 6 weeks from signing a contract of sale to settlement day.
This is important if you’re buying a new property because you’ll need to factor in the time it takes to settle when making an offer. In addition, it will help your legal representative negotiate a different timeframe with the seller.
If you’re refinancing, this information is also critical. You’ll need to factor in the time it will take to settle when you’re making plans to break your existing home loan contract.
15. How Much Should I Borrow?
While you may have an idea of how much you can afford to spend on a new home, a mortgage professional will be able to provide you with an accurate estimate of how much you can actually borrow.
You must share details related to your income, debts, credit card limits, outstanding debt, and financial commitments with your broker, as this will also impact your borrowing capacity. This will help you to understand how much you can realistically afford to spend on your new home.
How Joust Can Help Connect the Right Lender to You
Instead of scouring the market for the best home loan, let Joust do the job for you! The Live Auction is an innovative way to help you connect with suitable lenders in real-time.
Once you put your mortgage on the market, lenders will start making offers to you via Joust’s secure platform. This process is entirely online, so you can do it all from the comfort of your home.
You can compare the different offers, in terms of interest rates and fees, to find the deal most suitable for you. Additionally, there’s no obligation to accept any offer, and you’re in complete control throughout the process.
The information in this article is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.