The days of nurturing a relationship with your local bank manager have gone the way of landlines and leg warmers. Which means when it comes to getting a home loan many of us turn to a mortgage broker to help us on our home ownership and investment journey.
Why use a broker rather than hunt down a loan on your own?
1. An expert handles the legwork
Just as a mechanic knows more than your average Joe about a car’s engine, a broker knows a whole lot about loans. Every day they assess the financial needs and position of their clients, speak directly to different lenders and manage the mortgage application process from start to finish.
Engaging a broker lets you off the hook on the homework front: you can let your broker do all the upfront research and step in to do your due diligence once you have a loan offer on the table.
2. It’s a (mostly) free service
Most brokers are paid both an upfront commission and a trail commission by the lender that finances a customer’s loan. These commissions, paid after the loan settles, make broker services free for the borrower.
However there are some circumstances when you will need to pay a fee, which include if you pay off or refinance your loan within two years (known as a clawback fee); if your loan is small or particularly complex; or if you are taking out a commercial or business loan. There are also some brokers who simply charge a fee for their services instead of earning a commission from the lender.
3. Access to many different lenders
The average broker has dozens of lenders on their lending panel and part of a broker’s job is to keep up to date with the products on offer from each and every lender. They can then compare the terms of each potential loan and provide recommendations to best suit your needs. Brokers know which lender to turn to for borrowers who don’t meet standard lending requirements, so they may be able to get loan approval for customers in difficult circumstances.
The best brokers have strong relationships with the key decision-makers on their lending panel which puts them in a good position to negotiate the best loan offer for their clients.
If you deal directly with a loan officer at a bank, your choice will be limited to the products and interest rates offered by that particular bank.
4. Compare apples with apples
There’s more to a good loan product than a low interest rate, but it can be difficult to know what to look for beyond the percentage points that often make headlines. You’ll need to weigh up interest-only versus principal and interest repayments, fixed versus variable interest rates, split loans, offset accounts and lines of credit. There can be establishment fees, annual fees and discharge fees to consider and if these fees are on the high side, the loan product with the lowest interest rate may actually cost you more over the long term than a product with a slightly higher rate but low, or no, fees and charges.
A mortgage broker can help you understand the fees and features of available loans and explain the pros and cons of different loan structures.
5. Strategic mortgage advice
Mortgage brokers know a thing or two about maximising a loan’s potential.
They can help you in consolidating debts, accessing equity in your property and keeping a “clean” credit file to give you the best possible chance of having loans approved in the future.
They may also be able to speed up the application process if you are only weeks away from settlement.
6. Regular mortgage reviews
It’s common knowledge that many borrowers pay thousands more in interest than they need to because they never quite get around to refinancing when rates head south. Lenders rely on our apathy to rake in bigger profits when rates drop.
A diligent broker will review your loan on a regular basis and provide advice on the best possible way forward. This could mean negotiating with your existing lender for a better deal, changing lenders or switching between fixed and variable rates.
Contributor: Alex Jacques – Director, Jacques Financial Group