Finding the right home loan can be overwhelming. Brokers can help ease the application process and save borrowers time and effort.
Recent research shows that the number of new home loans created through mortgage brokers has reached a record high in the March 2016 quarter.
According to CoreLogic research group, mortgage brokers initiated $43.4 billion of new home loans during the March quarter, compared to $40.6 billion the same time last year.
This now means the broker market share for new residential home loans sits at 53.7 per cent, compared to 51.9 per cent in the 2015 March quarter.
A mortgage broker is someone who acts as a middle man, liaising with lender on your behalf to negotiate your home loan.
They are able to help you throughout the life of your home loan, from providing a range of home loans to select from, submitting the application to the lender and looking after it through to settlement, and also providing ongoing help and advice after you take out your home loan.
Did You Know?
Brokers usually don’t charge borrowers for their service as they are paid a commission by the lender after the loan has settled. It is like a free service paid for by the lender. Some lenders don’t offer their loans through brokers so avoid this cost. This can enable them to offer lower interest rates and fees.
Mortgage broker pros
Saves you time and effort: Instead of spending time calling lenders and searching online, they will do the research and come back to you with the most suitable options that match your situation and requirements.
Fill in the forms for you: Brokers can recommend loan options and then proceed to fill in the application form with you. If you are procrastinating about making a move because you struggle with forms, then this can be a real help.
Interpret what the lender needs: Brokers act as a conduit between you and the lender. If the lender needs clarification about something in the application or more documents then the broker is able to assess whether this is reasonable and push back or, get back to you in simple terms about what they need.
Keep you updated on progress: A good broker will not let a day or two go by without providing you an update on your application. If you haven’t heard from them, a quick phone call or email is all that is needed to find out.
Help those who have unusual circumstances: If you are self employed, have bad credit history or unusual income arrangements a broker is able to ask the right questions to help come up with a number of options with mainstream lenders as well as with specialised lenders who cater specifically for unusual circumstances.
Inside information on lenders: A broker will have extra knowledge about a lender’s loan products, policies and application process that you may not be able to find easily. This should make the probability of being approved much higher than if you blindly put in an application yourself.
Don’t have to repeat yourself: Particularly now with so many changes to lenders requirements and appetite for certain loans, if you were researching home loans yourself, you would have to go through your scenario over and over again with different lenders to find out what loan and rate you qualify for. A broker can take your information, and if in doubt, call the lender and put your “scenario” to them prior to applying to ensure that it fits.
Help with meeting deadlines: Particularly with purchases where there are numerous deadlines to meet, a broker can be working with the lender to ensure that these are met and the process is smooth and stress free.
Mortgage broker cons
Only have access to a limited panel of lenders: Mortgage brokers are only able to recommend loans that they have on their lending panel. Different brokers will have access to a different set of lenders. By doing some of your own research, you will find lenders who may not be on the panel or who don’t offer their loans through brokers. By at least doing some of your own research, you will ensure that the loan you eventually go with is the best on offer for your situation.
The advice they give is only as good as their knowledge: Brokers have different levels of experience and knowledge. Depending on what you are looking to do, ask the broker how many of your particular loans they do, what their recommendations are and why. The extent of their knowledge will be evident in their response.
Process can be slower: Depending on how busy the broker is and how much assistance they have, there could be delays in submitting the application due to their lack of support. Ask about turnaround and service levels and ensure that they deliver according to this.
Don’t get to know the lender: By delegating all your interactions on the loan, you can miss out on the opportunity to get first hand experience on what it is like to deal with the lender. Some lenders can provide as much assistance with the application as a broker and you get to see how professional and helpful they are.
May not get a full understanding of how the loan works: Depending on the knowledge of the broker, they may not have a full understanding of how transactions, redraw, offset accounts and repayments work. By speaking to the lender directly you are able to get these details direct and use them in your comparison of different loan options.
More enquiries on your credit report: An inexperienced broker may submit applications that don’t fit a lenders policies resulting in having to apply with another lender. If there is anything unusual about your application, having a broker who will run the scenario past their lender representative or support line first can ensure that only applications with a high likelihood of approval are submitted.
What to be cautious about?
Most brokers are paid a commission by the lender. There is a the chance that differing commissions between lenders could affect the loans they recommend to borrowers. When a broker gives you a couple of options, you can always ask how the commission they receive differs. This can help start a conversation about why they are recommending one loan over another.
Asking questions before deciding on a home loan is important to ensure you are getting the best possible home loan and the broker knows exactly what you want. Listed below are questions you should definitely ask your broker.
- How do you decide which loan is best suited to my personal situation?
The best home loan for you may not be the one with the cheapest interest rate. Getting to know your personal and financial situation first and then coming back to you using your criteria to detail your different options will indicate that the broker has really considered what you need.
- Which lenders are on your lending panel?
This will give you a sense of how many lenders they will consider when looking for the best loan options for you. Visit some comparison sites to find out what lenders are not represented. Ideally you would want a broker who has a broad range of lenders that include the major and smaller lenders.
- Which lenders do you tend to recommend the most?
This will give you an understanding of which lender they have the most experience and knowledge about, and how broad their recommendations are likely to be. If they do 99% of their loans with the one lender, they may not have good knowledge of the details on the other lenders.
- What type of borrowers do you deal with?
If you know that there is something unusual about your situation you really need to find a broker who has a thorough knowledge of the options. Just because they have commercial, self employed or bad credit loans in their ads may not necessarily mean that they are experienced with doing these.
- Can you provide a full comparison of the loans you are recommending?
A broker will provide you with loan options, but at the end of the day you need to decide which one to go with. The broker should be able to provide all the information you need to make an informed choice.
Brokers should be able to provide Key Facts Sheets for most of the loans that they are recommending. These make it easy to compare home loans side by side.For a Key Facts Sheet for a State Custodians loan Click Here
- What industry associations are you a member of?
Check out any industry associations they belong to on the internet. See how strict they are with applying for membership, ongoing educational requirements and any guarantees or claims that they make about brokers who are their members. This can be a measure of the quality of service you will receive.
- How much of a deposit do I really need to obtain a loan?
The same loan can have a different interest rates and mortgage insurance amount depending on how much you borrow and the use of the funds. Find out how these vary with the different lenders you are considering. Get the broker to run scenarios so you can see the difference if you contribute more when you purchase or have less of a buffer if you are refinancing. All of this can help you understand how lenders differ and choose the best option for you.
- What fees are involved?
It is important to ask about both broker fees and home loan application fees. Although most brokers do not charge borrowers for their services, it would be better to confirm that before going ahead. Also find out when in the process are these fees payable: upfront, when valuations are ordered, at approval or at settlement. Also find out if you decide not to proceed how much you will be out of pocket at each stage.
Want to know more about home loan fees? Read more here.
- What features are included in my new loan?
Home loan feature can be just as important as interest rates. Spend some time researching different features so that when you go back to your broker, you can provide them a list of what you want. If these features come at a cost, find out if another loan has it at no cost or whether the benefit will outweigh the cost. The broker should be able to give you some ballpark figures as to the sort of benefit that each feature may provide.
- How long does it take to submit my application?
Once you have supplied your documents and completed the application form, find out the brokers process to submit the application. Do they guarantee to submit it within a certain amount of time? Get them to provide the banks confirmation of receipt so you know exactly when they received it.
- How long will it take for my application be approved?
The broker should be able to give an approximate timeline for a pre approval, conditional approval and full approval with different lenders. Lenders regularly update brokers on their turn around times and a quick call to a lender will be able to meet your timeframes. This may help sway which lender to choose, especially if you are in a hurry to settle.
- How long will it take for the loan to settle?
Depending on whether it is a purchase or refinance, it will take different lengths of time to settle. If you are in a hurry because you have looming deadlines or are going overseas, your broker may be able to find a lender who can fast track the settlement. Get the broker to confirm with the lender that they are able to meet these deadlines prior to submitting. Don’t just assume it will be OK.
- Do your homework: It is important not to just choose the first broker you see. Spend a little time researching different mortgage brokers: what is their customer service history? Do they have any awards? What does their lending panel look like?
- Check credentials: Ask brokers for qualifications and experience. Are they a member of the Mortgage & Finance Association of Australia (MFAA) or the Finance Brokers Association of Australia (FBAA)?
- Be aware of their professionalism: How easy were they to talk to? Did they do what they said they were going to do? How professional was their website, their emails and how they spoke on the phone? Were they able to explain everything in easy to understand language?
- Prepare questions: Go through the above and prepare your own set of questions. By going armed with these you will ensure you are in the driver’s seat and get a sense of how experienced the broker is or whether they are reading from a prepared script. Did they really listen to your question and responded appropriately or did they just ramble on? Did they give you the feeling that they really knew what they were talking about?
- Get a written agreement: A written agreement will have the type of loan, loan amount, loan term, current interest rate and fees included. It should also include any broker’s fees or commissions, loan application fees and any early termination fees.
Never sign a blank form or leave questions for the broker to fill in later. If you feel the broker is rushing you to complete the paperwork, you can ask for more time to think about the loan.
- Do a quick home loan search: Although a mortgage broker helps take the time and effort out of looking for a home loan, you could miss out on other lenders that are not on their list. A quick google search or look on comparison website can give you an idea about what other loan options there are. A quick call to the lender will give you an idea how the loan you are considering compares.
Did you know that State Custodians has their own home loans as well as access to 25+ lenders on their lending panel? State Custodians provides their lending expertise conveniently online and deals direct with borrowers. From a quick question to completing an application over the phone, our experienced lending specialists are there to help. Call on 13 72 62 or leave your details here and they will call you.
Find out more about other home loan options and get tips on what to look for: