For first home buyers and first time investors, a broker can be a crucial part of their purchasing team. Jennifer Duke takes it to the experts to find out why you should be using a broker and how to find the best one

THINK OF all the different ATM brands you pass on your daily walk to work or weekend shop. Then think about the number of banks and lenders that you know of – this is likely to be just a small selection of those that exist.
Within those different organisations, a number of distinctly different mortgage options will exist for you. These loan products can vary dramatically, offering different fees, features and flexibility. If you walk into the bank where your personal savings are currently kept, they will likely do a good job at showing you their products and matching you to one of them.

However, you’re not going to be shown what’s on offer from other lenders, and shopping around’ online can take you a considerable amount of time.

By now you are probably starting to see why a specialist can be helpful when it comes to navigating this space.

Neil Lewis, lending manager for OH Mortgage Solutions, explains that many new buyers assume the ‘best’ loan just means the one that has the lowest interest rate available. Certainly, this is a consideration. “However, it’s not usually that simple,” Mr Lewis says.

“After in-depth research and an analysis of all the options, some borrowers realise that the loan with the cheapest headline rate isn’t necessarily their best choice,’ he says. “This is based on the realisation that certain types of loans provide more flexibility, lower fixed bank charges, easier exit and a lower deposit requirement.”

LENDERS, LOANS AND LESSONS

With so many considerations, getting the right loan is imperative. Speaking to a broker about your future plans can shed light on loan aspects you hadn’t considered.

For instance, if you’re purchasing a home now to use as an investment property later, it might be worth considering using an offset account to maintain your tax-deductible debt when you come to move out.

Mortgage brokers are able to explain these features, ensuring you don’t make the wrong decisions,explains Mr Lewis.
“It can often be very costly for a borrower if they choose the wrong product and need to make adjustments to their loan based on their changing circumstances,” he says.

While a lending institution manager is likely to advocate the best product for them, a broker represents the interests of the borrower.

Aussie Home Loans’ Matthew Rogers explains that for the feedback he has received, “homebuyers don’t get the level of service from a branch that they do from a broker. The branches are good with their own lender policy but I don’t know how much depth they go into with the borrowers”.

Director for Connective Mark Haron agrees, explaining that, “First and foremost mortgage brokers give you a broader variety of lender options; all mortgage brokers have a panel of lenders from which they can get a loan. And they need to become accredited with each and keep up to date, so that they are in a good position for homebuyers.”

  • Brokers do not involve any additional cost over and above the mortgage fees
  • Brokers are able to provide the best solution for the individual needs of borrowers
  • Brokers can educate and advocate for their new homebuyer clients
  • Brokers usually have access to a wide range of lenders and products
  • Brokers help explain the different features and options

Many brokers have access to hundreds of loan products. This means that the best brokers should take a personalised approach to your loan.

Mr Lewis notes that you should expect them to be asking you a “series of questions about [your] financial position and, based on this information, provided loan options to choose from. A good broker doesn’t just sell a product bur sources the best product options to meet the borrower’s specific requirement.”

SPECIALIST GUIDANCE

Clearly, when it comes to choosing the loan itself, a broker can be invaluable. However, they can also serve a crucial advisory role through the process of purchasing and becoming ‘finance ready’.

“The main thing is you’re looking for the broker to take the pain out [the process]. A good broker makes it seamless for you,” says AFG’s general manager for sales and operations, Mark Hewitt.

As specialists who have been through the purchasing process with many other home buyers and investors, you can easily leverage off their experience

“Many of our clients become long term and we see many different deals,” her explains.

In fact, when it comes to element such as lenders mortgage insurance(LMI) or choosing whether a higher loan- to- value ratio (LVR) is worthwhile, a broker can help advise on whether they might be better off taking a personal loan later ‘bits and pieces’ such as furniture, while putting as much as possible into lowering the LVR.

“Brokers can save a lot of time and they understand how annoying it can be dealing directly with the banks,” explains Mr Haron.

“On top of that, particularly for new- to- market borrowers, it’s not just about the product,”
It depends on the individual, and for this reason good brokers are used to being asked” every question under the sun,” says Mr Rogers. “It’s a massive purchase and doing it the first time around is very daunting. There are questions around lender type. How much can I borrow? What’s redraw? What’s better, fixed or variable? There’s often little knowledge around how the actual process works, the sales process, what happens when talking with real estate agents, what they need to do with a solicitor or conveyancer.”

Having a source of advice or experience in the form of a broker can help boost your comport level significantly during the deal.

Mr Rogers estimates that a majority of brokers see themselves in a kind of advisory role. While there is a bit of fear around legislation and the rules of advising client, “at the end of the day, we’re experts and we need to advise clients, especially new borrowers,” he says.

In fact, with so many different aspects and a potential 25-year loan to handle, the more advice the better, says Mr Lewis.

“A good mortgage boker knows all about buying houses and paying for them and educationg young people about that they need to know, ensuring they budget accordingly,” he says.

In fact, good brokers will guide buyers through the entire process, occasionally suggesting questions to ask real agents and lawyers and warning borrowers about common trip-ups.

WHEN ARE BROKERS NOT USED?

Obviously, if a mortgage isn’t required, then a broker can be overlooked. But for almost every other situation, a broker is a worthwhile consideration. Mr Rogers explains that human nature often drives buyers straight to their bank without any other thought.

“A lot of them will just go to the bank they’ve been dealing with since the age of five when they opened that bank account in school. For something as big as a home loan you want to do more than that,” he says.

Eight-step checklist

What a broker should be doing

  • Listening to you asking questions to help them understand your entire financial situation
  • Telling you about the breadth and depth of suitable home loans, as well as the products and financial institutions
  • Signing a mortgage/finance broker agreement outlining the scope of work, services provided and associated fees
  • Disclosing the commission structure – explaining upfront how the broker gets paid for their work
  • Explaining all fees and charges you, the consumer, are likely to incur
  • Explaining the compliance process, outlining who you can complain to and which organisations oversee the broker
  • Arranging to contact you periodically to review your mortgage and conduct a ‘home loan health check’
  • Explaining the privacy policy to ensure you know how any personal information you supply is used.

Source: Mortgage and Finance Association of Australia (MFAA)

Many other new buyers are unaware that a majority of mortgage brokers’ services are free: “They don’t need to pay a fee – the banks pay a commission for them to provide a service, “says Mr Haron.

“Even when they do charge a fee, when you look at the potential savings, it could be nothing compared to how much they’ve got out the process.”

In fact, there’s really little reason not to consider a broker, provided you choose the best available.

FINDING YOUR BEST BROKER

When it comes to finding a broker, referrals can be powerful. Who do you know that has purchased a home or investment lately? Ask to speak to their broker.

If you can’t think of anyone, real estate agents can often be a source of help, as can buyer’s agents.

“Word of mouth seems to be the biggest thing,“ says Mr Rogers. “You get a lot of people who say you helped a friend of theirs.”

Mr Lewis also suggests checking for accreditation with a recognized body, such as the Finance Brokers Association of Australia.

“after they have found one [a broker], they need to ask several questions about their experience – who they have represented and what types of structures they have set up for people on a similar situation to themselves. It is also worth asking for references. Speaking to people who went through the same process could help answer a few additional questions,” he suggests.

Remember that a crucial skill you will need in a broker is their ability to communicate difficult financial concepts to you. Mr Haron suggests, “A good way for a borrower to test this is to ask them questions,see how they come back to them. If they’re timely and explain the concept effectively, it’s a sign of good communication from the broker. Most mortgage brokers do this well –many even send out SMS messages providing updates to the borrower about where their transaction is up to.”

Must check items when choosing a broker

  • Check that they are licensed This is controlled by the Australian Securities and Investments Commission (ASIC). All brokers have to put their licence number on any advertising, so getting hold of this can make checking easy.
  • Ensure broker independence This will require an investor to ask some questions. Banks have recently begun to acquire brokerages
  • Check for fees Some brokers charge a fee to the investor. While most work just with lender commission, fees are becoming more common and investors should decide whether or not they are willing to pay. While banks pay brokers to introduce loans to them, some brokers are starting to charge fees for their services
  • Check for memberships There are two industry bodies: the Mortgage and Finance Association of Australia (MFAA) and the Finance Brokers of Association of Australia (FBAA). Membership is not compulsory, but it’s an easy way to ensure a broker is up to date in terms of education.

Source: Mark Hewitt, AFG
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