Find out how mortgage brokers operate, and learn about the broker-client process as well as the duty of care that brokers must exercise when recommending mortgage solutions to you.
Mortgage brokers bridge the gap between borrowers and banks, and they have a high level of responsibility when it comes to steering you in the right direction. Discover how mortgage brokers are reimbursed, how they access a panel of reputable lenders, maintain accreditation and satisfy their client duty of care when practising as a licensed professional in Australia’s real estate industry.
What is a mortgage broker?
Serving as an intermediary between a borrower and a lender, mortgage brokers are licensed professionals who typically help clients find a home loan that suits their personal and financial situation. They do this by leveraging their industry knowledge, resources and networks.
A broker will research, interpret and negotiate different mortgage products and make recommendations based on the borrower’s individual circumstances, facilitating a smooth transaction for the borrower.
What tasks does a mortgage broker perform?
- Assess your needs. The broker will assess your financial situation and determine your borrowing capacity as well as the type of mortgage product that will suit your long-term goals. A broker should evaluate your serviceability potential by presenting you with different calculations across different scenarios.
- Recommend mortgage products. After assessing your financial and personal situation, a broker will recommend suitable home loan products that complement your goals.
- Negotiate on your behalf. The broker will draw upon a panel of lenders and industry networks to find you the best deal with a competitive rate and attractive features.
- Provide support. As the loan process can be a complex proposition, the broker will offer you support and answer any questions that you may have about the process.
- Organise the paperwork. It’s the broker’s responsibility to ensure that they have all the required information to organise and lodge the paperwork on your behalf.
How are mortgage brokers paid?
Although mortgage brokers generally don’t charge a fee for their services, they do receive a commission from lenders. The commission structure and amount will vary depending on the lender as well as the volume of the transaction.
The most common commission received by a broker is known as the upfront commission, which normally amounts to 0.3-0.5% of the total loan value. For instance, for a $900,000 home loan, a 0.3% commission would translate to $2,700 as the broker’s upfront commission.
The ongoing or trailing commission is calculated based on the remaining loan amount each year, which is paid to the broker monthly. Although some lenders offer no ongoing commission to brokers, others may offer a trailing commission of 0.1-0.2% based on the outstanding value of the property.
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How does a mortgage broker become accredited?
To be approved by the Mortgage & Finance Association of Australia (MFAA), the broker needs to complete a Diploma in Financial Services, specialising in Finance and Mortgage Broking Management. They also need two years of experience practising as a mortgage broker before they can work independently or without supervision.
While studying this course, they will typically be working in the industry with a mentor, but generally don’t write loans until they have two years of industry experience.
How does a mortgage broker establish a lending panel?
While some brokers maintain direct accreditations with lenders, the major lenders often have volume and compliance standards that may be difficult for a broker to achieve on their own. As a result, many brokers use an aggregator or a “dealer wholesaler” to access major lenders and maintain their accreditation.
Who are aggregators?
Aggregators can be discount businesses to fully franchised brands such as Mortgage Choice or Aussie Home Loans. Coupled with their lending panel, aggregators often provide additional services such as mortgage comparison and customer relationship management (CRM) software, mentoring and compliance support.
Most lenders require the broker to either hold an Australian Credit Licence (ACL) or be authorised under a licensee. Additionally, lenders will need to have completed a Certificate IV in Financial Services specialising in Mortgage Broking and Finance. Often, it is also required that the broker becomes a member of an industry body.
Does the aggregator charge a fee?
The aggregator will charge a fee for offering the broker access to their lender panel and additional services. This fee is normally a percentage of the upfront or trailing commission, or it could be a flat monthly or annual fee.
Some aggregators may also charge a joining administration fee.Back to top
The broker-client process
Although the process will vary from client to client, a broker will generally undertake the following steps to source an appropriate mortgage solution for you:
- Assess client information. Once you make contact with a mortgage broker and agree to work with them, the broker will gather important information to assess your needs, such as your income, assets, employment history, credit file and liabilities.
- Determine client needs. Once they’ve collected this information, they can determine what kind of home loan and product features will suit your situation. At this stage, the broker may establish the appropriate loan amount, loan-to-value ratio and determine which product type would be ideal for you, such as an investment loan or an owner-occupier loan, depending on your strategy.
- Determine borrowing capacity. Using software to determine your serviceability potential, the broker will also consider factors to estimate your borrowing capacity, such as your type of income (full-time or part-time) and number of dependents.
- Calculate required deposit and loan costs. If you don’t have a 20% deposit available, then the broker will take you through alternative options, such as accessing existing equity in other properties or opting for a guarantor loan. The broker should also discuss and forecast mortgage costs with you, such as application fees, stamp duty, government charges and conveyancing fees.
- Review loan options. Once the broker understands your goals and financial situation, they’ll compare suitable mortgage products and their rates, features, fees and charges to find the most competitive and suitable product for you. The broker will negotiate with lenders on your behalf.
- Apply for pre-approval. After a loan product has been agreed on, the broker will prepare the paperwork and organise pre-approval.
- Finalise the loan. Once an offer is accepted, the broker will assess the application and advise you as soon as the offer is “unconditionally approved”. The broker will then organise a Letter of Offer for you to sign. The broker may also communicate with your solicitor and lender to schedule a settlement date.
- Ongoing support. Throughout the entire process, the broker should provide you with ongoing support and answer any queries that you may have. A broker that goes “above and beyond” will stay in frequent contact with you, raise issues such as landlord or contents insurance that may be required, and remind you of when your first repayment is due.
Client duty of care
Under the National Consumer Credit Protection Act (NCCP), a mortgage broker has a duty of care to not recommend an unsuitable loan to you. This means the broker must carefully consider your needs and requirements, including your financial situation, to ensure that you will be able to service the loan without enduring financial hardship.
The broker’s commission must be disclosed prior to any application being made on your behalf. They must provide you with a credit guide that details the commission they receive, the lenders on their panel and a dispute resolution process.
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