With so many options available, many people turn to mortgage brokers to help them find the best home loan deal, but are they really working in your best interests?
In theory, it sounds like a good idea, but let’s share our learnings with you.
Here are our top five questions to ask before you go ahead.
- How many lenders do you deal with? We recommend asking this question as many brokers may only have a close relationship with a specific bank that pays them higher commissions. Just make sure they are actually shopping it around for you in order to get you the best deal.
- What are your fees and commissions? You should ask this question so you have everything in writing and don’t get any surprises. We’ve heard of people paying a broker’s fee, loan application fees, search fees and other related fees. Generally, a broker gets paid an upfront fee, plus receives a trail commission from the selected bank. So just ask the question and make sure they’re not double-dipping.
- Are you licensed and a member of the MFAA? This question is important as the Mortgage and Finance Association of Australia is the peak national body for professional mortgage and finance brokers in Australia. Their members are required to abide by a Code of Practice. So just make sure that you’re actually dealing with an experienced broker that isn’t only focused on low rates; they should have your complete position protected.
- Do you have a 12 month referral process? We recommend asking this question as some brokers will “touch base” with you in 12 months to do a ‘market review’ to see whether they can get a better deal for you. This tactic is used widely as the broker earns more commission and a higher upfront fee when they move your loan to another bank, so be aware.
- What is the loan comparison rate? We recommend asking this as the comparison rate is what you should be comparing. This is the true rate that includes all the fees and charges, so be mindful to not get sucked into a special rate without checking the comparison rate.
What others say about mortgage brokers…
In February 2019, the Hayne Royal Commission called for sweeping changes to the remuneration of brokers. Commissioner Hayne said the “chief value” of trail commissions – which is typically worth about 0.15 per cent of a loan – was “money for nothing”.
“Why should a broker, whose work is complete when the loan is arranged, continue to benefit from the loan for years to come?” commissioner Hayne said. (Source: https://www.afr.com)
Should I use a mortgage broker?
In June 2018, Canstar published an article titled “Should you use a Mortgage Broker?” Here is an interesting excerpt from that article:
“Mortgage brokers act on behalf of the lenders that pay them and as such may only show you products from a small number of lenders. This may not give you a fair idea of the range of products that are suitable for you.”
“Educational qualifications and industry experience can differ widely between brokers, so make sure to enquire about this before you engage the services of any mortgage broker.”
Is this the best loan for me? Or the best loan for the broker?
RateCity published an article that should be read by anyone who is weighing up the benefits to them versus the broker. It is titled “The top questions refinancers should ask a mortgage broker”
“You should be confident that you are receiving a loan that provides you with all the features you need, and at the lowest cost which should also include receiving 100% of the monthly paid lender commissions, without the possibility that you will receive an inferior and more costly loan that has a better reward for the broker”.
“Ensure that you request a proper comparison of your existing loans interest rates and total costs is provided to you, with all your outgoing and change over costs added as a cost in any recommended lenders interest rate and total costs.”
“Whilst a lower interest rate might seem appealing, it is the difference in the total costs that you pay for. It may take many years to recover the refinance costs making refinancing your home loan an unnecessary waste of your time, just for the sake of obtaining a lower interest rate.”
The best advice is – Do your own research
In Australia, most people pay off their home loan over 25 or 30 years. It’s a big decision that can have huge financial consequences.
If you decide to use a mortgage broker, please get a second opinion from us.
The mortgage broking business is maturing and we’d love to hear from anyone who seeks some free advice. At First Option Bank, we don’t accept loans from brokers due to our past poor experience of members being told one thing and then sold another.
If you’ve experienced pressure selling, poor sales tactics, inappropriate advice, lack of disclosure and upselling, simply call First Option and speak with any of our loan specialists. They will give you one-on-one service and ethical advice.