Before you decide on a mortgage broker, make sure you're asking the right questions.
A good mortgage broker can help you navigate the home loan market to find the home loans best suited to your situation. They can take the confusion out of the mortgage process and match you up with the right lenders for your circumstances. However, before you sign on the dotted line, there are some important questions to ask your broker, both about their business and the loan for which you're applying.
Questions to ask about the broker
1. What credentials do you have?
You will want your mortgage broker to have the relevant mandatory courses completed as well as other additional education to better guide their choices. You'll also want to ensure your broker is registered with the Australian Securities and Investment Commission (ASIC) either as a license holder or a credit representative. You can check ASIC's register here.
2. Are you a member of an industry association?
Mortgage brokers are required to be a member of an industry association, either the Mortgage and Finance Association of Australia (MFAA) or the Finance Brokers Association of Australia (FBAA). The MFAA and FBAA set standards of practice and discipline for their members.
3. Are you a member of an external dispute resolution (EDR) scheme?
By law, mortgage brokers are required to belong to an EDR scheme, either the Credit and Investments Ombudsman (CIO) or the Financial Ombudsman Service (FOS). An EDR scheme provides consumers an avenue to resolve complaints should problems arise with a broker’s service.
4. How long have you been in the industry?
The length of time that the broker has been in the industry will reflect their experience, so you may want to opt for a broker with more years in the business.
5. Do you charge a fee?
While most mortgage brokers don’t charge their clients, some do, so you should pose the question to the broker at the start so you’re clear about all the costs involved.
6. How many lenders do you have in your network?
As a rule of thumb, most brokers have access to 20-30 lenders. You want to ensure that the broker has a diverse range of lenders in their panel, including banks and non-bank institutions.
7. How much commission do you make?
To understand the broker’s motivation, you should ask how their commission structure works. This may help you determine whether or not there is a conflict of interest at play.
8. Do you have any testimonials?
A successful mortgage broker who has developed positive broker client relationships will be happy to provide you with testimonials from past clients to vouch for their quality of service.
Questions to ask about the loan
1. What is the interest rate?
The answer to this question determines how much you'll repay on top of what you borrow. Interest accrues over the life of the loan, and with the average mortgage lasting 15 years you want to make sure your rate is affordable.
2. Is the rate permanent or just a promotion?
Lenders often give new borrowers an attractive low rate to win their business. This low rate is normally temporary, and sees you revert to the lenders standard rate when the promotional period is over. Find out whether the advertised interest rate is permanent, and if it isn't what's the lenders standard variable rate. There's no point getting a great rate for a year if you're going to pay over the odds for the remaining term.
3. Why have you selected this loan for me over other loans?
By law, mortgage brokers must choose a home loan for you that is "not unsuitable". This means the features, rates and fees should be a good match for your personal circumstances. Make sure you find out how your broker arrived at the decision to suggest a particular home loan for you, including which of your personal circumstances were taken into account.
4. How much of a deposit do I need?
Ask how much of a deposit the lender wants, and find out whether the size of the deposit affects the interest rate of the loan. Sometimes a lender will give you a better rate of interest if you put down a larger deposit. A smaller deposit may also mean that you have to pay a lenders mortgage insurance (LMI) premium.
5. Can I make extra repayments and/or repay my loan early?
The quickest way to repay your mortgage and save money in interest is to make overpayments whenever possible. Double check your lender is happy for you to do this without penalty. Some lenders charge an admin fee to process the additional payment. Whilst you're on the subject of overpayments you should also find out whether your monthly payments adjust in line with any additional payments you make.
6. What are the additional charges?
The most common charges you'll run into when getting a home loan are valuation fees, application fees, and legal fees. It's not unusual for lenders to run special promotions where you get free valuation or help with fees. Ask if there are any additional charges, and find out whether they can be paid upfront or have to be added to your loan.
7. What documents will I need to provide?
Normally lenders need to see three to four months' worth of bank statements, along with a couple of forms of I.D, and proof of your assets and liabilities. Ask whether your lender has any other requirements as this will speed up your application process. Read our home loan checklist for more information
8. How long does it take to process the loan?
In the property market a few days can make a big difference. Try to get an estimate of how long the application process will take, and don't try to settle on a property too early into the process. It's a good idea to get a pre-approval before you go hunting for the home of your dreams.
Mortgage broker comparison
How does a mortgage broker help?
When you deal with a mortgage broker, the answers to these questions should be used in your comparison of loans. Remember, a mortgage broker is there to help you get a home loan!
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Aussie Home Loans is both a lender and a mortgage broker, and offers a range of services.
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