It’s competitive out there. Recent price hikes in property prices as well as interest rates have more and more people looking to break into the market and get the best deal on their finance. Given that interest rates are set to rise further, it’s crucial that mortgagees get the best bang for their buck.
Mortgage brokers, rather than direct consultation with a lending institution, can help buyers access different loans with different requirements. This often gives more flexible arrangements, which helps lenders who can’t secure a loan through one of the bigger, more traditional lenders, such as the banks.
So, you’ve made an appointment and you’re sitting with a mortgage broker. What should you ask them?
1. How many lenders do you work with?
Most brokers will have a small range of lenders that they work with. While sometimes a broker working with more lenders will give you more variety, a broker’s familiarity with the options offered by their lenders will help them find the best plan they can offer to you. Also, this exclusivity may mean that they have access to rates and deals that other lenders may not. In short, it’s worth asking the question and bearing the answer in mind as you continue your conversations. If you don’t like what’s on offer, and your broker only has a small panel of lenders, it might be worth talking to someone else.
2. Are there any brokerage fees?
Most mortgage brokers won’t directly charge you a fee for working with them. Even when you book meetings with them, you usually won’t pay out of pocket. However, it’s worth asking the question before you engage a broker as up to 15% of brokers in Australia do charge fees upfront, and may also still earn a commission or some kind of benefit from signing you up for the loan. Don’t be turned off by the idea that your broker is earning money from the transaction – this is their livelihood! But no one likes a shock, and this is one way to make sure you won’t be caught with any unexpected upfront costs.
3. Why is this home loan the best for me?
Interest rates are not the only way to gauge whether a loan is right for you. It might be tempting to lock in the loan with the lowest rate, but there are other factors that might make your loan more expensive than one with a higher interest rate. One example is whether or not you can make extra payments. Some lenders don’t want to let you pay the loan off early, and they will charge you fees for getting ahead on your repayments. Loans may also have significantly lower upfront fees that might mitigate a higher interest rate. There may also be other features that will help you, such as an overdraft facility, that need to be factored in. Ideally, a broker should be able to explain which of these features your loan has, and why that makes it the better loan for you.
Mortgage brokers are bound by a ‘best interest duty’, which means that they are obligated to act in your best interests, not their own. This means that while they may recommend products for which they receive a referral fee, they should not do so if it isn’t in your best interests.
4. Can I change my interest rate later?
While this might not seem like a relevant question when rates are going up at the moment, most mortgages last decades and there’s no way to know which way the wind will be blowing by then. It’s important to know your options, even if you won’t exercise them right away. Ask your broker whether you should opt for a fixed or variable rate loan. While they may not be able to give you a firm recommendation, they will be able to list the pros and cons, especially over time and for your circumstances. It can make a difference even over the short term as well, so don’t feel that the goal is to lock in the current or lowest rate no matter what, as that may not always be the best option for you and your circumstances.
Although the process of purchasing a house is similar for most buyers, the factors that will ensure your best outcome are going to be specific to your situation. If you approach a broker, go in with an open mind and ask a lot of questions. Don’t be afraid to talk to more than one broker as well, especially if they aren’t charging an upfront fee. It’s important that you know what’s available to you, and that you’re happy with what you’re being offered. Your loan will be around for a long time, so don’t rush into it!