Should I Use a Mortgage Broker?

What does a mortgage broker do?

A mortgage broker is someone who moderates the process between home buyers and lenders. They help home buyers find suitable home loans, and they also help lenders find suitable customers.

A good mortgage broker can answer your home loan questions, try to find you a great deal on your home loan and speak to banks on your behalf.

They will typically work with you all the way through your journey to purchase a home. That is, they’ll not only try to find you a great home loan, but they’ll help you manage the process all the way to your settlement date.

What does a typical process with a mortgage broker look like?

1. Introductory phone call or meeting
2. An analysis of your circumstances and financial situation
3. Loan recommendations
4. Loan selection
5. Application submission
6. Settlement

Your broker will keep you updated through each of these stages, and should also help you manage your loan after the settlement date.

They should also give you a credit guide which explains your borrower rights and other details on commission that brokers receive from lenders.

Before you meet or call a mortgage broker

Check ASIC Connects Professional Registers. If you search your mortgage broker’s name and find that they aren’t listed under either ‘Credit Representative’ or ‘Credit Licensee’, then you may reconsider engaging their services as it means they may be working without a licence.

A credit licensee is a person or organisation that holds an authorised Australian credit licence.

A credit representative is someone who is either:

• Authorised to engage in credit activities on behalf of a credit licensee, or
• An employee or director of a credit licensee or one of its related bodies corporate.

How do you know if you’ve found a good mortgage broker?

Generally speaking, a good mortgage broker will be upfront and transparent about their process with you on your journey to find a suitable home loan.

Here are some ways to see if a mortgage broker is right for you:

• They’re qualified
  As mentioned earlier, they should have a credit licence or be a credit representative in a financial institution.
• They understand your needs
  They should work with you to figure out what you could realistically afford to borrow from a lender, as well as get an understanding of your needs and goals with regards to home ownership.
• They’re upfront about costs, fees and commission from lenders
  Broker services are typically free for borrowers, because brokers usually receive a commission from the lenders they work with upon settlement.

  According to the Mortgage & Finance Association of Australia (MFAA), mortgage brokers who are members of their association must disclose how they’re being remunerated by the lender they recommend for your home loan. It’s part of their job to act in your best interests, so if they refuse to discuss any compensation they receive from lenders, then this could be cause for concern.

  Brokers also receive a ‘trail commission’ from the lender, which is an ongoing payment that continues through the life of your home loan and is calculated on the balance of your loan. Brokers shouldn’t let the trail influence the loan product they recommend for you.

  If your broker does charge a fee for their services, they should tell you as soon as possible and not begin until you accept their services.

• They’re proactive
  Your broker should give you your credit assessment, as well as notify you of any application progressions.

  They should also give you written documents for any step throughout the process before you confirm to move to the next stage.

• They have great reviews and ratings
  Many people ask friends and families to recommend a great mortgage broker, but if that isn’t an option for you, you can jump online and see how other people have reviewed brokers in the area you’re looking to buy a home.

For more information, visit the Moneysmart website.

When or why might someone choose to engage a mortgage broker?

Ultimately, many people choose to deal with a mortgage broker for a range of reasons:

• Having someone help them liaise with a range of lenders.
• Not being confident in navigating the home loan process alone.
• Having a complex financial situation.
• Having a poor credit score.
• Having recently experienced bankruptcy.
• Being busy and wanting someone to make the process simpler.

However, more experienced borrowers may also choose to engage a broker for the following reasons:

• Looking to refinance an existing home loan.
• Buying multiple properties.
• Having a go-to broker to help them manage all of their applications.

A guide to your first meeting with a mortgage broker

Being prepared with the following information will help your first meeting with a Mortgage Broker:

1. Proof of ID such as:
   1. Passport
   2. Driver’s Licence
   3. Proof of age card
2. Proof of income such as:
   1. Two most recent payslips
   2. Letter of Employment stating annual salary
3. Proof of savings such as:
   1. Bank statements – typically backdating at least six months
   2. Investments
4. Proof of financial commitments such as:
   1. Credit card statements
   2. Car loan repayments
5. Property details
   1. Sale contract of your chosen property (if you have it)
   2. Tender and council approved plans (if you’re building a new home)
   3. Council rates notice (if you’re refinancing)

Another thing you might like to do is start comparing home loan options yourself. Although the whole process can be a little daunting, iSelect has partnered with Lendi to make the process of finding a suitable home loan easier.*

You can click here to get started today.

Questions to ask your mortgage broker

1. Is there a fee for your service?
   It’s uncommon for mortgage brokers to charge their customers, but some do, so make sure you ask them early on so you’re not surprised with any unexpected fees.
2. How many lenders are there in your network?
   This is a good way to find out how varied your broker’s network is. If they don’t work with a broad range of financial institutions, including banks and credit unions, then perhaps it’s best to keep looking for another broker.
3. How are you remunerated by the lenders in your network? / How does your commission structure work?
   Getting a good understanding of your broker’s commission structure will help you better understand their motivations.
4. Can you explain how the interest rate on this home loan works? Does it have a limited time period?
   Many lenders offer low interest rates as an incentive to secure more buyers, but many of these low rates are available for a limited period of time. Ask your broker how long the rate will remain fixed, and when it will revert to the lender’s standard rate – this could be a fixed or variable rate, meaning you might end up paying off more interest in the long run.
5. How much will I need to provide for a deposit?
   This is an important one to discuss with your broker. Some lenders offer lower interest rates if you provide a larger deposit amount, which can be a good incentive. But if you provide a small deposit amount, then some lenders may also charge a higher premium on lender’s mortgage insurance (LMI). LMI usually applies if you borrow more than 80% of the property value.
6. Would it be possible for me to repay my loan early and without incurring penalty fees?
   Many borrowers like to pay off their home loans sooner rather than later in order to avoid accumulating interest, but keep in mind that many lenders charge penalty fees or early repayment fees – this is because they would be missing out on the interest they would accumulate if you continued with your regular repayments. You can clarify this issue with your broker.

   These kinds of penalties are usually referred to as ‘break fees’ and typically apply to fixed rate mortgages, rather than variable rate mortgages.

7. Why did you choose this particular home loan for me?
   It doesn’t hurt to ask your broker this question and see how well they’ve understood your personal situation. If they give you a well-reasoned answer that shows they’ve done their research, then it might be go-time.

Can you refinance your home loan with a mortgage broker?

Yes, you can refinance with a broker, or you can directly approach a lender. If you do choose to go ahead with a mortgage broker, ask them if they charge a fee for refinancing.

And if you’re dealing directly with a lender, here are the fees you should compare if you’re considering refinancing your home loan:

• Fixed rate loan (break fee): Some lenders may charge you a fee if you choose to ‘break’ your fixed loan term with them, because it generally means that they miss out on accumulating additional interest from your repayments.
• Discharge fee: This is a fee that is often charged when you close your current home loan.
• Application fee: This fee is normally charged upfront.
• Switching fee: Some lenders charge you for refinancing to a different loan within the same financial institution.
• Stamp duty: You might be required to pay stamp duty, so check this with your lender.

For further information on refinancing your home loan, please visit Moneysmart.

Are there any cons to using a mortgage broker?

While mortgage brokers can be very helpful on your journey to finding a suitable home loan, there can be some downsides.

• They don’t compare the entire market:
  While a good mortgage broker should have a broad range of lenders in their network, they don’t compare every single home loan option that’s out there. This can include online-only lenders, so it’s possible that you could miss out on a home loan with very low interest rates that’s not on your broker’s radar.
• You won’t directly deal with your lender:
  Since your mortgage broker is an intermediary between you and your lender, it’s likely that you won’t directly speak to your lender at all throughout your home loan application journey, and you’ll be relying on your broker for any information that comes for your lender. For people who prefer to get their information directly from the source, this could be a hindrance rather than a help.
• Their skill set and experience can vary:
  There are many reasons why a mortgage broker might not be up to scratch for you – they might be a small operator with too many clients, or they might just be inexperienced. Either way, don’t sign any documents or submit any payments until you’re 100% confident with the mortgage broker you choose (if you do end up choosing one.)

What if I want to compare home loan options myself?

Many people also choose not to engage a mortgage broker when they’re in the market to buy a home. It’s absolutely possible for you to work directly with a lender of your choosing, especially if your personal situation or finances are not too complicated.

If you’re ready to start comparing home loan options for yourself, iSelect has partnered with Lendi to make the process of finding a suitable home loan easier.* Click here to get started today, or give Lendi a call on 1300 186 260 (08:30-18:30).

Last updated: 6/12/2021