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Expertise. Is your broker a home loan guru
Have you ever walked into a hardware or home ware store and known how to describe what you needed but not what it is called? When the shop assistant worked out what you wanted, then showed you where the thing-a-ma-jigs were, how did you know which one was right for you? Home loans are complex and lenders continue to complicate them to make their mortgages seem better than the one up the road. Some lenders have hijacked features such as 'offset' or 'fixed' to trick you into thinking their home loan is something that it isn't. A good mortgage broker listens to and explores your needs to help you reach an outcome rather than simply 'selling' you a mortgage.
Warning: Although the mortgage broking industry is currently unregulated, brokers are required to undertake formal study before becoming a broker. However, even with this study, your broker should have at least two years broking experience, coupled with ongoing training and education or be supported by someone who does.
Tip: Mortgage brokers, like you, can make mistakes and miss things. Getting the wrong loan can cost you thousand. Ask your broker how their recommendation is quality checked.
The commission contradiction - are you safe
Although some do, most mortgage brokers do not charge you for their service. They can do this because the lenders they arrange your home loan with will pay them commission. This commission is usually paid over the life of your loan and varies significantly lender to lender and loan type to loan type. Although there are laws requiring commissions to be disclosed, this does nothing to stop commission influencing broker recommendations.
Businesses such as Mortgage Choice and Aussie have attempted to remove this risk by paying a flat commission rate to their broker contractors that is well below the minimum that the big business receives. However this does not prevent the big business from excluding products and lenders based on commission and this exclusion does not have to be disclosed to you.
Tip: Find a mortgage broker that is a salaried professional rather than a commission based contractor to avoid this problem altogether.
Independent mortgage broker vs. contractor
When it comes to mortgage broker services, like many Australians, you are probably familiar with Aussie and Mortgage Choice. They have high profile advertising campaigns using television and other advertising to heavily promote their broker service. What you probably didn't know is that neither of these companies are mortgage brokers. They are brands that subcontract mortgage brokers through franchise and licence arrangements. Whilst these businesses do the minimum they need to keep their contractors working, their main focus is to grow the number of contractors they have, as quickly as they can. As well as taking up to 60% of commissions from the contractor, businesses like Aussie and Mortgage Choice also control the software and the education of the contractors which can affect the recommendation that contractor is making to you.
An independent mortgage broker retains a greater share of commission, which can be used to improve education, quality and in some cases, be shared with you as their customer.
Tip: Choosing an independent mortgage broker that has the right expertise and commission neutralising structure in place increases your chance of getting advice that lines your pocket, not someone else's.
Mortgage comparison software - saving time
There is a range of ways using a mortgage broker saves you time, however the biggest time saving by far is how quickly they can compare different home loan options. Part of this comes from having specialist software that crunches hundreds of different home loan options based on your needs. This is a much faster process than calling lenders individually or spending hours surfing the internet. This speed is important as it helps protect you from rate and fee changes and alert you to special deals that may only be available for a limited time.
Loan comparison software should only be a first sweep to identify the top few most competitive options based on your needs. A good broker will always verify the information with the lender and also attempt negotiations on your behalf for a better rate or fee waivers. A good broker will also be able to spot the differences between fees and features that might be different, yet have the same name, or vice versa.
Tip: Make sure your brokers information and software is independent. There is an old expression in the computer industry of garbage in, garbage out. Ask what steps your broker takes to ensure the information their software is accurate.
Which lenders, what products
Your mortgage broker only compares products from a limited group of lenders they have agreements with. This is called their lending panel. Although there are literally hundreds of home loan lenders available in Australia including non-bank lenders, credit unions and bank, it is not possible for any one person or company to provide accurate and up to date information on all of them. Even web sites such as Cannex and Infochoice carry strong disclaimers to protect them from lawsuits arising from their information being wrong. Most brokers will have a panel of highly regarded lenders they are confident will provide you with the right mix of quality and affordability.
Tip: Make sure your mortgage brokers lending panel represents a group of lenders you would be happy to take your mortgage with. Be wary of 'own brand' products and lenders you have not heard of. Brokers often have special commission arrangements that make these products more profitable than other lenders.
