How to: Pick the best mortgage broker
Picking a mortgage broker can be as tricky as any part in the property buying process and, as they'll be the expert securing you a loan that can often be one of the larger financial stresses around, you'll want to get this part correct.
Think of the role of a mortgage broker to be two-fold. On the one hand, they are there to secure you finance. On the other, they are also there to help you prepare yourself for future decisions and to ensure you understand what you are signing up for. We've previously written about the importance of shopping around for a mortgage broker.
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Just like any other expert, their skill and knowledge can vary considerably. If you're a first home buyer, an investor, or an upgrader, you'll want a mortgage broker that deals with the same type of clientele. If, for instance, you are an investor with plans to purchase multiple properties down the track then you'll want a broker who understands how your loans will need to be structured to best prepare yourself for that point. Brokers with most of their experience in the first home buyer area will not be best placed to prepare you.
Firstly, ask for referrals from people who are in a similar situation to you or are in a situation that you aspire to. For instance, if you want to have four properties, then try to find someone who has reached this goal. You should then ask who their broker is, and what their experience has been like with them. Many investors will use the same local expert. Good brokers regularly receive referrals and do not necessarily need to solicit as much for their business.
There are some quick and easy ways to work out if they're going to be a decent broker for you. One quick rule of thumb is to stop talking and just see what they're asking you. If they're interested in your plans for the property, such as your likelihood of selling, of using any equity, of renovating, then they're thinking ahead for you. This is invaluable.
They should be explaining the downfalls as well as the plus-sides of different products, as well as be ready to describe and help you understand how different instruments can work for you (What is an offset account? Why might you need one?). They should also explain where you can trip up, or where you might have difficulties. Find out about some of the more difficult loans they have had to write and how they worked with the problems.
A broker's role often requires their honed negotiation skills to push your loan over the line with the lender, so look out for their communication - if they're struggling to explain things to you, then you might want to reconsider.
Turn over page for the questions you must be asking your prospective mortgage broker (including their licenses, affiliations and access to loan products).
Questions you must be asking your prospective mortgage broker
- Are you licensed to recommend credit?
All mortgage brokers are required to hold an ASIC credit licence (ACL) or operate as a credit representative under a licence holder. Ask to see evidence and do your own checking on the ASIC website using its “professional registers” search engine.
- Are you a member of the Mortgage and Finance Association of Australia (MFAA) or Finance Brokers Association of Australia (FBAA)?
Industry body membership is not mandatory, but all reputable brokers should be a member of one of these organisations. Membership requires higher education benchmarks and other professional and ethical requirements.
- What lenders are on your lending panel?
A broker’s lending panel is the lenders they are accredited with to recommend loans. Get a list of a broker's lenders and do some research. Most reputable brokers would offer a mix of banks, non-banks and mutual lenders. Be wary of broker who only has a few unknown lenders as the broker may have failed to gain accreditation with some of the bigger lenders.
- How many lenders are you likely to recommend?
Most mortgage brokers will have at least a dozen lenders on their panel and sometimes as many as 30. However, they are unlikely to be able to recommend loans from all these lenders, so you should find out which lenders they are most familiar with and ensure you are comfortable with this selection.
- How long have you been a mortgage broker for and how many loans have you written?
It’s important to gauge the level of experience of your broker. If he's a rookie, his knowledge may be limited and you may feel more comfortable with someone who has more experience. It's also worth asking how business is going and if he's been busy.
- Which is your favourite lender and why?
Brokers are required by lawyer not to recommend unsuitable loans to borrowers. Many, though, will have a lender they recommend more than others, and you should find out why. Valid answers could range from lowest rates and fees to excellent customer service. Brokers are paid by commission and other incentives (such as volume of business), so make sure you’re not just making up the numbers for them.
- How do you make your recommendations?
Many brokers will input your information into some kind of software program to come up with a list of suggested lenders and loans. However, it is also the duty of a mortgage broker to consider your holistic financial needs and your personal circumstances. A broker should have good product and market knowledge and good people skills and should not just rely on their computer software to come up with recommendations.
- Can I speak to one or two of your clients?
This is a great way to assess a broker's performance for yourself and whether previous clients were satisfied with the service they received. You can also check a broker's website for testimonials and do a Google search to see if her name pops up in relation to a dispute or if they have made the news for the wrong reasons. Also consider looking at their testimonials.
- Do you charge a fee?
Most brokers are free as they are paid by lenders, but some do charge upfront fees for their mortgage advice. A broker should disclose these fees upfront, but it’s worth checking. And if they do charge any fees these should be for additional services above and beyond determining a suitable loan for your needs.
- What service do you provide post settlement?
A broker should provide continuing service to her client after the loan has settled. Brokers who “set and forget” will leave you high and dry if you run into problems. Most lenders pay brokers a monthly trail commission as an incentive to provide good post-settlement customer service, but even if they don’t a good broker relies on word-of-mouth referrals and recommendations to grow her business. You are legally entitled to know what commissions are received, so it's worth finding this out as well.
Turn over page for the extras that you can look for
Whistles and Bells
It's becoming increasingly common for mortgage brokers to stay in touch with their clients through online services. If this is something you want, ask about how they stay in touch. Some will offer newsletters, while others will provide updates on changing rates via text messages.
You will want to have a regular channel of communication with your broker, particularly as you are waiting for approval, so ensuring they are available is also important. See how easy it is to get them on the phone.
Test them out
Do not be afraid to head online to a comparison tool and look for a better deal. If your mortgage broker has suggested a product and you think there is something better - ask them why they didn't recommend it. Chances are, there will be reasons you haven't even thought of.
MoneySmart recommends heading in to see a broker with a "wish list" of features and hopes for your loan. Ask them what is realistic and achievable and the costs for each - compare the responses between brokers.
Warning signs for investors:
If a broker begins suggesting specific properties to you, then be aware. Are they likely to receive a commission if you buy that property? What is their reason for the suggestion?
If they show disinterest in your plans or specific requirements, then you'll never get a loan product that suits your unique needs.
When the going gets tough, if the broker suggests that you falsify any information then alarm bells should be ringing.