Finding a good broker can mean the difference between an average home loan and a great home loan, but how do you pick the right person for the job?
Samantha Gibson, from Maroochydore
in Queensland, purchased her first house as an investment property four years ago. Late last year, she decided to buy a second property together with her boyfriend Matthew John Smith, but assumed they would have a difficult time getting a loan because they didn’t have a deposit.
Although Samantha already knew a little bit about the mortgage industry, she decided to consult a broker for a solution on the best way to proceed with very little establishing finance.
After talking with an old neighbour who is a financial planner, Samantha made contact with Tracey Hansford, a broker with Finance Options (previously known as Wealthwise). Tracey had been recommended because of her reputation as a trustworthy and hard working broker.
Tracey helped Samantha and Matthew find money for a deposit by using the equity in Samantha’s first property.
“I think Tracey did a fantastic job with our home loan,” says Samantha. “She worked out how much deposit we’d need and how much we could actually borrow. Then we knew what we could afford before we went out and bought something that was on the market for more than what we had.
“Matt works late sometimes and our broker was flexible with her hours. She gave us a call every few days to keep us up to date. That was great because I’m a bit of a stress-head,” she says.
As a borrower it’s essential to find a broker who you’re not only comfortable with, but one who can explain the ins and outs of finding the right home loan.
“Go with a broker that you feel you can trust to deal with your situation and only do what’s right for you. Tracey was great because she explained everything. She explained everything even if we asked the same question three times,” says Samantha.
It was very important for Samantha to find a broker who could work her new mortgage in with her old, and explain how the process was going to work effectively. “She helped us with the structure of the loan and split it so our split, making it that much easier at tax time,” she explains.
Samantha and Matthew had the finance approved to buy their $380,000 house in Maroochydore. Although Samantha says “the house needs some renovations”, they’re more than happy with their purchase. The property has three bedrooms, one bathroom, a rumpus room and double garage “for all of Matt’s cars and motorbikes”, says Samantha.
The first encounter
Brokers have access to a range of products through a panel of lenders that they’re accredited with. They act as a go-between between lenders and borrowers, in a way very similar to travel agents. Travel agents will help you find the best airfare, and the airline pays a commission to the travel agent. Mortgage brokers work in a similar fashion. They locate a suitable deal for you using the information you provide, and the lenders will pay them a commission.
“The borrower doesn’t have to shop around and go to every lender to find the most suitable loan for them. It’s convenient time-wise to use a broker – especially if the borrower is going into every lender’s branch,” says Khanna Barutha, partner, Greater Impact Home Loans, member of PLAN Australia.
The stiff competition to win your business means you can take your time to shop around for the right broker. Once you’ve done your homework, consider speaking with a few brokers to size up the market. Find out how long they’ve been in the industry, which lenders are on their panel and the types of loans they’re offering. Your broker should find the loan that best suits your needs, not the other way around.
“As with any profession, you should be asking them how long they’ve been doing that type of work, what their past employment was and who their previous employer was,” advises Barutha.
Make sure your broker uses the lenders on their panel for the right reasons. If your broker uses similar lenders for the majority of their clients, ask why those lenders suited those customers – ensuring your broker doesn’t receive any extra commissions from recommending particular loans.
In order to make this certain, Sarah Dougan, a broker with L.J. Hooker Financial Services, says your broker should provide you with a ‘Finance Broking Agreement’ during the initial interview process.
Ask your friends and colleagues if they know someone who has had a good experience with their broker. Then, meeting this mortgage broker face to face will help you decide whether you can work with him or her in the long term.
Ask for an explanation of all the documentation surrounding your loan application and contract. Many customers aren’t clearly informed about which lender their broker has used, let alone the interest rate or loan product. Ask for a loan product facts sheet. Having in writing what the broker has offered will ensure there are no nasty surprises later.
“The loan product facts sheet outlines the different features and charges of a loan. It informs the borrower of any application, monthly and annual fees, or if
the loan has any redraw or offset facilities. This information needs to be provided to the borrower, so they know why their broker has recommended a particular lender,” explains Dougan.
Take the lead
Don’t let the broker do all of the talking – make sure you ask plenty of questions about what’s on offer. Ask the broker to come up with the best product for the sort of loan you want.
Make sure your broker can explain to you how many lenders they have on their panel and how many of those lenders they actually use, and why.
Look for a broker who is up to date with industry knowledge and make sure they can adhere to strict deadlines. Test the waters with the broker, ensuring they’re punctual, well organised and give you confidence in their decisions and problem-solving capability.
Don’t hesitate to ask your broker to explain everything in simple terms, particularly if it’s your first time taking out a loan. A good broker should be able to explain and clarify the financial terms and issues in ways that you understand.
You can tell a lot about a broker by their lending panel. Check if they have a range of reputable institutions on their panel. If not, you could be missing out on better mortgage deals.
“You can get that sharp talking salesperson who can suck you in with sales talk, but that’s not necessarily what people are looking for. For me, it’s about the client and what they need, and I only ever make a decision based on their situation,” says Brett Thompson, a mortgage broker with All Finance.
Ideally, the broker should have access to an extensive range of lenders, with a mix of both traditional (banks, building societies and credit unions) and non-traditional (wholesale or non-conforming) lenders. Some brokers don’t always compare a wide range of suitable loan products, so it’s best to ask your broker which products they’ll be comparing and from which lenders.
Of primary concern will be the broker’s experience and expertise. Don’t be afraid to ask questions regarding how long they’ve been in the industry. If you want to find out all you can about your broker, ask to read their testimonials from previous clients. This will allow you to gain an insight into their relationships with other borrowers.
The industry is self-regulated in most states to date; however, a new regulation package is on its way, which is set to place mortgage brokers under a far more rigorous regime.
The Mortgage & Finance Association of Australia (MFAA) has welcomed legislation for a comprehensive scheme for regulating the broking industry – an exposure draft of National Finance Broking Legislation, released by Linda Burney, NSW Minister for Fair Trading in late November last year.
Phil Naylor, CEO for the MFAA, says the association has been lobbying regulators for national legislation since 2002.
“We’ve worked closely with the regulators in all states and territories to formulate a piece of legislation which both protects consumers, giving them confidence in dealing with mortgage and finance brokers, as well as being fair to the industry in terms of compliance,”
After expelling three brokers in only two weeks during November/December 2007, Naylor says the MFAA won’t stand for members breaching their code of practice and high standards of ethics.
“We’re tough on compliance with our code. By being tough, the public can have confidence in using an MFAA member, knowing they aren’t going to be taken for a ride,” he says. “We take our responsibility to members and to borrowers seriously. We’re dedicated to ridding the industry of unacceptable behaviour and alerting the public to people who have been found to have done the wrong thing.
”In light of these developments, make sure your broker is an Accredited Mortgage Consultant (AMC) – that is, a broker approved and accredited with a professional organisation like the Finance Brokers Association of Australia (FBAA), the MFAA or the Credit Ombudsman Services Limited (COSL).The Certificate IV in Financial Services is the key qualification to look out for, as a broker can’t become an AMC without it. Members are also bound by a code of practice, have personal indemnity insurance and access to an independent dispute resolution scheme.
Fees and charges
The majority of brokers render their services free to consumers and are paid a commission from the credit providers. If fees are charged, they may be payable upfront or upon completion of the service (although upfront fees aren’t allowed to be charged in the ACT, NSW, Victoria or Western Australia).Please note that if a broker secures you a loan that adheres to all the requirements set out in the agreement you have with the broker and you decide not to accept it, you’ll probably have to pay the broker’s fee regardless.
Ask your broker what commissions or benefits he or she receives; and if your broker does charge a direct fee, is it a fair and reasonable amount for the service provided? In NSW and Victoria, brokers must disclose the commission paid to them by lenders, and all MFAA-accredited brokers must also disclose these payments to their clients as part of the finance broking contract.
The criteria of independence, integrity and reliability are the most important. If a person you’re dealing with appears to meet the above criteria, then follow your instincts.
A broker wouldn’t have made it into your home or survived long in the industry if his or her reputation and past performance weren’t up to standard.
Do you have more than $200k in your super fund? You could use your super to buy property - Find out how