1. Ask the lending manager or call centre operator a few questions. How long they have been in the role? What is their experience? You have every right to feel confidant that this person, who is helping you with what may be the biggest transaction of your adult life, is suitably qualified.
2. You know youre onto a good mortgage broker if they only have to submit one or two applications. Beware if your mortgage broker gets you to sign multiple applications. If someone asks you which lender you have applied to, you need to be able to answer this question easily. Multiple applications at the one time can affect your credit score. The only reason you should be changing lenders is because of a valuation issue or a very recent policy change - and it shouldnt happen a second time.
3. You are quite within your rights to ask your broker to supply their industry membership (MFAA or FBA), Cert IV accreditation and Industry insurances - PI Insurance and COSL Membership. If a broker cannot supply you with these, then you shouldnt discuss anything further with them.
4. Ask family, friends or work colleagues if they can recommend anyone. A good broker will base their business on referrals, and if they are doing the right thing, their clients will have no hesitation in recommending them to you. But asking someone doesnt mean you have to go into your personal details with them. If someone has test driven the broker first it is a good indication that the broker does their job well and will also look after you.
5. Broker commission
Lets take that into practical terms with an average loan of $300,000. The loan has gone to a lender who pays 0.55% upfront and 0.165% in trail commissions. The income earned from this loan would be $1,650 upfront and $41.25 per month in trail commission. Out of this, the broker has to pay their aggregator a percentage and has to cover all of their expenses. Lets not forget, they will still have to pay tax on the income as well as 10% GST. An important thing to understand is that all lenders will take this commission back from the broker if the loan is repaid earlier than 18-24 months.
There are some lenders out there that do pay a higher commission, and these lenders usually charge a higher rate. But these lenders are also usually more specialised and focus their lending on people who may not be as credit worthy.
There could be issues with poor credit reports or specialised residential security. A good broker should only introduce you to these lenders if you have no other options.
If brokers do put all of their clients to these lenders as they pay more over time, they wont have a business. It wont be long before clients work out they dont have the right loan and will not be happy. They will not refer anyone and eventually refinance out with another broker or directly with the bank. With no repeat clients or referrals, no broker can build a sustainable client base, and will eventually go out of business.
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