Starting out right is the key to success.
Although apple-to-apple comparison is difficult, it is critical you achieve a basis for objectively comparing different options. Fortunately, as an investor focused on ROI, there is a simple answer. Bottom-line cost.
Whilst cheapest is definitely not always best, effective comparison requires bottom-line cost comparison based on your view. The use of advertised interest rates, comparison rates, and hidden fees complicates comparison. Ask your lender or broker to provide you with a bottom-line cost including interest, fees, and charges on either a 3 or 5-year exit. Fees should include all costs to get into, maintain and get out of their solution, no matter what they call them. This avoids hours of your time in front of a spreadsheet calculating the bottom-line cost.
If any fees are variable (such as Lenders Mortgage Insurance) ask for an estimate including any assumptions used in their estimate. Ask your lender or broker to individually list mortgage lendersincluding any deferred establishment fees and discharge related costs. Make sure you get it in writing.
Understanding the bottom-line simplifies your selection process by helping you identify the cost of different solutions against promised benefits. If your lender or broker will not provide you with this information, you can avoid being tricked by simply crossing them off your list.
Warning: Set up and exit costs, what they are called; when they apply; and how much they cost you; vary significantly loan to loan, lender to lender. Some set up costs and penalties are so severe that switching in less than 5 years can add upwards of 0.5% p.a. to the effective rate. Although these fees are not included in the comparison rate or advertising, borrowers often end up paying them or stay trapped in an under performing loan.
One more chance
Unless you are completely dissatisfied with your lender or mortgage broker, it is important to give them a chance to retain your business and help you find out where you stand. As they know your situation, they should be able to look after you. However, your loyalty should stop there. After all, regardless of whether you arranged your loan via a mortgage broker or with the lender directly, they have continued to profit from your business ever since.
No matter how attractive your current lenders solution appears, there is a fair chance there is something better in the market. Offer your business out to other lenders directly, via mortgage brokers or both. This allows you to understand how fair they are being with you. If you find a better solution, take it. Your current lender has profited from you since the beginning and really should have taken better care of you.
Tip: A mortgage broker can make switching between lenders simpler by reducing the paperwork and the cost. Brokers that stand by their recommendations include satisfaction guarantees and share the cost of refinancing if things don’t work out. A relationship with the right broker also means you’re not left to start again each time you change lenders.
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