Home Loan Brokers and Home Loan Negotiators
An important part of choosing a home loan is getting good advice. One method homeseekers use is speaking to a home loan or mortgage broker, who will not only hunt down a great home loan deal on your behalf but will also run you through everything from your borrowing power to the features that could be right for you and even help you complete the home loan application.
What is a home loan broker?
A home loan broker, also called a mortgage broker works as a middleman between a borrower (e.g yourself) and the lender (e.g the banks). Brokers usually have relationships with a select number of banks that they negotiate with on your behalf for a more competitive deal.
How do home loan brokers make money?
While brokers generally don’t charge you a fee, if you decide to sign up with a home loan through your broker they will receive a commission from the bank for bringing them business.
What are the benefits of a home loan broker?
The great thing about a home loan broker is that they will not only negotiate a competitive home loan package for you but they will also be with you each step of the way from the search stage through to the application and settlement.
What are the catches to watch out for?
The special relationships between brokers and banks mean that the advice they provide may not be 100% objective. That’s why it’s always important to do your own leg work by comparing the home loan market to ensure you’re getting the best deal for you.
What are my other options for getting home loan help?
If you decide to go it alone here are our top tips for haggling:
- Stick to your guns. You might not get the best deal the first time you ask, so challenge the banks by not accepting the first offer and ask them if they can do better.
- Haggle on fees. The interest rate is important but the fees could also add up to big bucks. So don’t forget to try your hand at haggling down the application and ongoing fees.
- Bundle your products. Tell the bank that you’re willing to move across your other products like insurances, transaction/savings account if they can bring a good deal to the table.
Tips for choosing a mortgage broker
If you decide that you want to go down the path of speaking to a mortgage broker, make sure you follow these top tips to ensure you find a qualified broker who will help you land a competitive home loan deal.
Get recommendations. Word of mouth is the best way to find a broker, as you know that they’ve delivered great service in the past. So ask around to see if a family member, friend or colleague has a trustworthy home loan broker they can recommend.
Check that they are a member of the Mortgage Industry Association of Australia. The MFAA overseas 11,000 brokers in Australia, with the aim of ridding the industry of “unscrupulous operators”. So any brokers that are members must adhere to strict standards when it comes to providing advice to borrowers.
Find out which providers they work with. A home loan is probably one of the biggest financial products you’ll ever take out, so you’ll want to do some recon work on the providers offered through your broker to ensure they are the right fit for you. A good way of seeing how a provider ranks on everything from customer service to convenience, is by reading reviews from customers just like you.
Questions to ask a mortgage broker
Before you commit to dealing with a mortgage broker, ask some of the below questions to ensure you’re 100% comfortable they can offer you the right home loan for you.
1. Why did you become a mortgage broker?
This question is a good opener and will trigger an emotive response, giving you an idea of how the broker got into the trade and a bit of a background to their brokerage history.
2. Can you give me the contact details of previous clients?
If you didn’t find your mortgage broker through a friend or family member, it’s a wise idea to get the details of 2-3 of their previous clients to see how others found getting a home loan through the broker.
3. How much deposit will I need?
Providers have different deposit requirements, with some allowing you to borrow up to 95% of the property value, whilst others have strict lending criterias only allowing you to borrower up to 80% of the property price.
So find out from your broker what kind of loans he or she has available for your borrowing situation and get an idea of what kind of deposit you’ll need. Keep in mind, lenders may have stricter borrowing requirements for investors than owner occupiers.
4. What fees will I be charged?
While the broker may present a home loan with a standout rate to you, make sure you find out what the fees are, so you’re not caught out by a hidden fee down the track. The common fees you may be charged, are as follows:
Upfront fee: When you apply for the loan, the lender may charge an application fee that is usually to cover things like credit checks and administration costs. Your broker may be able to negotiate with the lender to reduce or remove this fee altogether.
Ongoing fees: This fee is usually charged on a monthly basis and is around the $10 mark. Your broker may also be able to negotiate with the lender to remove this fee, especially if you’re a creditworthy borrower or are looking to bundle your banking products, e.g bring your credit card or transaction account over to the lender.
Breakcost fee: Be mindful if your broker recommends a fixed rate loan, it could come with a breakcost fee if you decide to pay out the loan early. So if you do opt for locking in a fixed rate over the variable alternative, make sure you don’t intend to switch loans until the fixed rate period comes to an end.
5. What features does the home loan come with?
Also check that the home loan package your broker suggests comes with features that provide you with flexibility. Here are some to consider:
Mortgage offset: A popular option to reduce the amount of interest you pay on your loan is putting any cash you have in an offset facility attached to your home loan, as any money in the account is offset against the home loan principal on a daily basis. This means if you have $10,000 in an offset account and your home loan is $400,000, you will only be charged interest on $390,000.
Extra repayments facility: Alternatively you could ask your mortgage broker to find you a home loan that comes with the option of making fee free additional repayments on your loan. This will bring down the home loan principal and allow you to pay off your loan sooner. Our extra repayments calculator shows on a $400,000 home loan with a 5.25% interest rate, a monthly extra repayment of $500 would reduce the interest you pay by $61,282. Plus you’ll shave 3 years and 2 months off a 25 year loan.
Redraw facility: To provide you with some flexibility, you could also ask your mortgage broker to add a redraw facility to your home loan shopping list. This feature means you can draw upon any extra repayments you’ve made, which may come in handy when your family expands and you need a new car or you need to do a quick home reno.
6. What documents do I need?
Ask the mortgage broker to run you through the different documentation you may need e.g payslips, group certificates, bank/credit statements and identification. If you’re applying for a low doc loan the mortgage broker will run you through a different set of document requirements like your last two year’s tax returns and a letter from your accountant.
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