Do all mortgage brokers earn commissions?
How do you know if you’re choosing an independent mortgage broker?
To find out, you need to ask a few questions about the business interests they have with other companies and how they get paid.
There are actually very few brokers in Australia that can claim to be “independent” but that doesn’t mean you can’t get an amazing service.
Do they get paid commissions?
To claim the title of “independent”, a mortgage broker should be working on a “fee-for-service” model.
That means you pay them a fee for helping you to find the right home loan.
The upfront and trail commission they receive from the lender should then be refunded to you in full once your home loan settles.
The trail commission itself is paid back to you each month as a mortgage rebate or a cash back.
Brokers that operate in this way often market themselves as unbiased because they’re not being incentivised to place you with a lender that’s not in your best interests.
What’s the problem with this model?
The majority of these business models have gone bust because they aren’t financially viable.
With the cost of compliance and processing margins in our industry, profits are actually quite slim as it is.
Less choice of lenders
Independent mortgage brokers have access to major banks and lenders but they tend to have limited access to second-tier non-banks and customer-owned lenders like credit unions and building societies.
Longer to process your application
Because of the slim profit margins they work on, independent mortgage brokerages tend to take longer to process your application.
They tend to be one or two men teams so they don’t have the extra staff to escalate your application with the bank.
Home Loan Experts operates on a commission-based model so you can reap the benefits of having a team of highly-trained support staff supporting your broker in managing your file.
You’ll get access to almost 40 lenders across Australia and enjoy a smooth home loan application process.
Please call us on 1300 889 743 or complete our free assessment form to find out how we can help you!
What else should I look out for in a broker?
Even if you’re not working with an independent mortgage broker, there are a few things to consider when making a decision.
Is the brokerage they work for owned by a bank?
Home Loan Experts isn’t owned by a bank but it’s actually a lot more common in the industry than you may think.
Doesn’t that mean I’m just being offered that bank’s products?
From our experience, we don’t see our competitors that are bank-owned recommend inappropiate home loan products because of their ties to their employer.
However, there is still an inherent conflict of interest no matter how you spin it.
This is where the brokerage works with a bank, non-bank or a mortgage manager to create branded home loan products.
The home loan itself is actually funded by a bank and the broker is often incentivised to sell this product over other products on the market.
ACL versus ACL holder
Brokerages that operate as an Australian Credit Representative (ACR) for an aggregator are tied to that aggregator’s own banks and lenders.
If you work with an Australian Credit Licence (ACL) holder, that broker is free to take your home loan application to many other lenders on the market.
The drawback is that an ACL holder is unable to leverage the systems of the aggregator meaning potentially slower processing times and more mistakes.
Aggregators have also had more time to build strong relationships with banks and lenders meaning that they have more negotiation power in getting deals across the line. An ACL holder falls down here.
We actually operate under one of the largest aggregators (Connective) in Australia with a wide range of lenders to choose from and huge negotiating power because of the large number of loans that they write.
Ties to other products and service providers
This includes third-parties like real estate agents, buyers agents for high-end property investors or commercial buyers agent for commercial investors and developers.
The mortgage broker may be more inclined to recommend properties or services from such agents.
Similarly, mortgage brokers with ties to property developers may suggest that you apply for a construction loan that isn’t in your best interests.
Am I making a good broker choice?
As a bare minimum, you should find out if the mortgage broker is an active member of the Mortgage and Finance Association of Australia (MFAA) or the Finance Brokers Association of Australia Limited (FBAA).
These associations set out professional standards for the industry and provide training in credit so you can be sure that you’re dealing with a competent and qualified mortgage broker.
You should also find out whether they are a member of an external dispute resolution (EDR) scheme that’s been approved by the Australian Securities and Investments Commission (ASIC). The Credit and Investments Ombudsman (CIO) is the industry standard.
Hopefully, you will never need to use them but if you’ve been recommended a product that wasn’t right for you, you’ll want an independent voice on your side.
Ask a lot of questions
The National Consumer Credit Protection Act 2001 (NCCP Act) governs the entire mortgage broking industry and states that a broker cannot recommend a product that is “unsuitable” for your financial needs and goals. Most brokers will do a great job!
Ultimately, you have to some of your own due diligence to ensure that the broker has your best interests at heart.
Recently, ASIC raised questions about the actions of some brokers, such as recommending an interest only period where it wasn’t really suitable for their client’s financial situation.
In other circumstances, a fixed rate was recommended despite the broker not fully understanding the client’s requirements or objectives.
One of the goals we have at Home Loan Experts is to provide Australians with free information about mortgages, the home loan process and the benefits and drawbacks of different solutions and features.
We want to help you make an informed decision so check out more home loan articles on our website.
Better yet, why not call us on 1300 889 743 or complete our free assessment form and discover why we’ve won ‘Best Customer Service’ for two years in a row in the Better Business Awards.