What Is A Mortgage Broker?
Separating the good from the bad
At its most basic, a mortgage broker simply acts as the go-between a customer and a bank when choosing and applying for a home loan.
They assess your financial needs, compare home loan products from a number of different lenders on your behalf and help to manage the mortgage application process all the way to settlement and beyond. This is what separates the great mortgage brokers from the mediocre.
So how does the process work and can they really help with your home loan needs?
How does it work?
Most mortgage brokers are self-employed and work solely on the commissions they receive from banks when their customers reach settlement on their home loan.
Let’s not beat around the bush here: yes, they are paid by banks. However, they don’t work for the banks.
Brokers only get paid when the home loan settles and they can even incur a fee known as ‘clawback’ if you refinance your mortgage within the first 2 years of getting approved.
It’s in their best interest to get you the right loan for your situation!
They assess your situation and compare loans
Unlike a bank, where it can sometimes feel like you’re just a number, brokers delve deeper into a client’s situation and ask the right question so they can find you the right solution.
The right lender may not necessarily be the one that will offer you a competitive interest rate.
It may simply be one that will approve your home loan, particularly if you’ve been knocked back for a loan in the past because you weren’t able to quite meet standard bank lending requirements.
This is where mortgage brokers really shine because they’re able to take your information and compare home loans from a range of different lenders and provide you with a product recommendation that best suits your needs.
A bank will try to do the same thing but the important thing to keep in mind is that they can only offer the interest rates and products they have.
It’s fair to say that you’re potentially missing out on a great deal if you don’t sit down with a mortgage broker.
They make the home loan process easy
Even if you already have a mortgage, applying for a home loan can be a daunting, time-consuming and even frustrating experience.
Banks aren’t always the best communicators and documents can seemingly vanish into thin air!
A mortgage broker can take care of the entire application process for you, organising your documents, speaking with the bank, pushing the process along, and acting as your only point of contact all the way up to settlement and beyond.
The great news is that organising an appointment and simply having a conversation with a broker is completely free.
Give us a call on 1300 889 743 or complete our free assessment form to speak with one of our senior brokers and get a feel for what the process is like.
Aren’t mortgage brokers dodgy?
Up until 8 to 10 years ago, particularly in the lead up and immediate aftermath of the Global Financial Crisis (GFC) of 2007/08, mortgage brokers came under a lot of flack for being the “cowboys” of the financial services industry.
Although banks were the biggest culprits, some parts of the mortgage broking industry had a hand to play in the so-called “subprime mortgage crisis” that rocked the United States and wider world economy.
Banks were paying ridiculous upfront and ongoing commissions and even offering kickbacks and incentives to brokers for selling particular home loan products that weren’t necessarily in their client’s best interests.
Although only a small percentage of the broking industry was involved, mortgage brokers have never quite been able to shake this perceived conflict of interest.
Following the GFC, the industry underwent serious changes with many kickbacks and incentives banned, upfront and trail commissions reduced and industry associations like the Mortgage and Finance Association of Australia (MFAA) and Finance Brokers Association of Australia (FBAA) pushing for professional standards to be lifted across the sector.
Thanks to the work of the Australian Securities and Investments Commission (ASIC), a lot of the dodgy brokers have been convicted as part of ongoing investigations or have left the industry entirely.
How can I trust them?
If you’re not sure whether your mortgage broker is legit, the first thing to ask for is their Australian Credit Licence (ACL).
As ACL-holders, brokers operate under the National Consumer Credit Protection Act (NCCP Act), which means they must recommend products that are ‘not unsuitable’ for you based on ‘reasonable enquiries’ of your financial situation. It’s a legal requirement which means you’re protected as a consumer.
Mortgage brokers should either have their own ACL or be authorised under a licence, typically through their aggregator (this is simply the wholesaler that supports the broker by paying their commissions and providing client management software).
Brokers that operate under an aggregator are typically able to offer customers a wider range of products and generally provide a more streamlined application process.
On a side note, going through a mortgage broker that operates under an aggregator is actually a big win for you as a customer because it means they have strong ‘accreditation’ with many banks, lenders, credit unions and building societies (more on that below).
So to check that you’re speaking with a qualified mortgage broker:
- Check to see that they’re registered with ASIC. You can also call ASIC’s Infoline on 1300 300 630.
- Ask for a copy of their Certificate IV in Financial Services (Mortgage and Finance), the minimum requirement for a mortgage broker.
- Make sure that they’re registered with an ASIC-approved external dispute resolution (EDR) scheme such as Credit and Investments Ombudsman (CIO, previously COSL).
- Find out if they’re a member of the MFAA, FBAA or the Mortgage Industry Association of Australia (MIAA).
Once again, this is just the bare minimum.
Ideally, you’ll want to speak with a mortgage broker with experience or has at least undergone proper training.
They’re not just for first home buyers or people who can’t qualify
Because of their credit policy knowledge, mortgage brokers don’t just make the home loan process easy and stress-free.
On top of that, the best brokers actually have strong relationships with the key decision makers at the banks meaning they’re in a position to negotiate great pricing.
This can take the form of a sharper variable or fixed interest rate or waiving such fees as accounting-keeping costs and, in some cases, Lenders Mortgage Insurance (LMI).
Many of Home Loan Experts’ mortgage brokers have actually worked in the credit departments of many major banks and lenders which means they understand the lending policies of many different products back to front.
They know exactly what the bank wants to see in a mortgage application so you have a better chance of getting approved the first time. What’s more, they’re paid by the banks so their services are free in most cases!
Complete our free assessment form today.
Can they shop around with every lender in Australia?
Whether it’s your first home loan or you’re looking to refinance, shopping around for a home loan can be time-consuming and even spell disaster for getting approved down the track.
That’s because each time you apply for finance, whether it’s a mortgage or a credit card, it actually gets recorded as an enquiry on your credit file. Having too many enquiries can actually see your application declined.
As authorised credit representatives, a broker can look at home loan solutions from a wide range of lenders without affecting your credit file.
They can then come back to you with at least 2-3 recommendations that you not only qualify for but match your goals, whether your goal was to get a strong interest rate, cash out equity, consolidate debt or whatever it is you wanted to do.
However, it’s important to keep in mind that a mortgage broker doesn’t have access to every bank, lender, credit union and building society in Australia.
They can only deal with lenders that they have accreditation with which means they’re authorised to send through applications and deals with the lender on behalf of a customer.
Brokers that have written a lot of loans (a high volume) through a particular lender will get upgraded to higher levels of accreditation which means:
- They speak to the key decision makers in the credit department to possibly make policy exceptions.
- Speed up the application process which is important if you’re only weeks out from settlement.
- Negotiate exclusive interest rates that aren’t advertised to the general public.
These brokers are pretty much treated like VIPs and you’ll see the benefit!
The reason is that brokers that operate through an aggregator have access to a greater number of credit providers.
Again, it’s not every lender in Australia and be aware that some brokers may not work with lenders that do not pay commissions.
Lenders are usually carefully selected based on their credit policies but it’s important to do your own research and continually ask your broker questions about why they’ve chosen a particular product or lender over another.
Ask them what fees, if any, are to be paid upfront and find out what their commission rate is.
Can they help if I need business finance or a commercial loan?
They may have a particular accreditation with the commercial arm of a bank or lender but, depending on the complexity of your needs, it’s always good to seek out someone with experience.
Beware of brokers that have no idea what you’re talking about!
Do brokers provide financial advice?
No! Mortgage brokers only hold an Australian Credit Licence (ACL) so they can’t provide you with financial advice.
For example, they can’t tell you which locations are great to invest in or how to manage your self-managed superannuation fund (SMSF).
If you need financial advice, speak to a financial adviser that holds a current Australian Financial Services Licence (AFSL) or, for tax advice, speak to a qualified accountant.
Some final golden tips
- Speak to friends and family that have used a broker: Did they have a good experience? You may even want to ask the broker for the contact details of a few of their own clients.
- Do some of your own research: Since buying a property is one of the biggest investments that you’ll ever make, research loan products yourself and always ask tough questions of your broker including what their commission rate is.
- Consider getting a written agreement from the broker: It should detail how the loan works, what features are included, the loan term, the interest rate, and any upfront, ongoing or penalty fees that may apply.
- Take your time: You should never feel like you’re being pressured to sign on to a mortgage. You can always ask for more time to think about your decision. For instance, an online mortgage broker may be more convenient but at what cost?
Do you want to speak to a mortgage broker?
As your financial and personal situation changes over time, whether it’s due to having children, needing to renovate or nearing retirement, you’ll need a mortgage that evolves with you.
With a good broker, you should never feel like you’re in the dark. From application, pre-approval, approval-in-principle (AIP or condition approval) and settlement, they should be there with you every step of the way and beyond.
If you would like to speak to one of our senior mortgage brokers for a free, no obligation, simply call us on 1300 889 743 or complete our online enquiry form today.