What should you ask a mortgage broker?

The short answer

Ask how many lenders were considered and why this one was recommended. Ask what the loan costs you and what the broker is paid. Ask what the loan costs to run, not just what the rate is.

Then ask what happens after settlement, and who picks up the phone. Most of the disappointment in this industry lives in that last question, because it is the one nobody asks at the start.

The questions to ask in the first conversation

The first conversation is where you work out whether this person understands your situation or is fitting you to a product. These are the questions that settle it.

1. 1

   What is your experience, and what credit licence do you hold or operate under?

   Every credit assistance provider in Australia has to hold or operate under an Australian credit licence, and the number has to be disclosed. A good answer gives you the number without being chased for it, and you could check it yourself on ASIC's register.

2. 2

   How many lenders are on your panel, and how many did you consider for me?

   The size of a panel matters far less than how much of it was genuinely used. A good answer names the handful of lenders that were considered for your circumstances and explains why the rest were ruled out.

3. 3

   Why this lender, and not the next one down?

   This is the question that separates advice from order-taking. A good answer talks about your income type, your deposit, the property and the lender's credit policy, rather than about the advertised rate alone.

4. 4

   How do you get paid on this loan, and what does it cost me?

   For most residential home loans there is no fee to you, and the lender pays the broker a commission when the loan settles. Some commercial and specialist files do carry a fee, and where one applies you should be told the amount in writing before any work starts.

5. 5

   What could stop this from being approved?

   A broker who says nothing could go wrong has not read your file properly. A good answer names the two or three things in your position that a credit assessor could question, and says what is being done about each of them.

6. 6

   Who actually handles my file, and who do I call?

   Plenty of practices hand the file to support staff after the first meeting, which is not a problem as long as you know it is happening. A good answer tells you who does what and gives you a name for the follow-up.

None of those answers commits anybody to anything. Approval, pricing and the valuation are the lender's decisions, and a broker who promises you any of them before an application exists is telling you something they cannot know.

Questions about cost, before you agree to anything

Cost is where the least is volunteered and the most is assumed. The rate is one line in a structure you could be living with for decades.

Ask about the broker's remuneration and about the loan's own costs separately, because they are two different conversations. A broker is required to disclose the commissions payable on the loan they recommend, so the disclosure already exists and you are entitled to see it.

• What is the comparison rate, and which fees is it picking up that the headline rate is not?
• Are there application, valuation or settlement fees on this loan?
• Is there an annual or ongoing package fee, and what does it actually buy me?
• What commission does the lender pay you on this loan, upfront and ongoing?
• Is there any fee payable by me, and if so, is it set out in writing before you start work?
• What would it cost me to leave this loan early, or to break a fixed term?

Questions about the loan you are being recommended

A loan is a structure, not a rate. The features you use every week could matter more to you than a small difference in pricing, and the wrong structure is expensive to undo later.

• Is this fixed, variable or split, and why is that the right shape for my circumstances?
• Does it have an offset account, and is there a cost attached to it?
• Can I make extra repayments, and can I get them back out again?
• What happens at the end of a fixed term, and who tells me it is coming?
• How would this loan be structured if I later turned the property into an investment?
• If I own more than one property, is cross-collateralisation being proposed, and what would that mean for me?

Ask the last one even if you only own one property. Structure decisions made now could limit what you are able to do with the next purchase, and unwinding them later usually means a fresh application.

Questions about the process and what happens afterwards

The application itself is mostly document gathering and waiting. What you want to know is who is doing which part, and what could slow it down.

1. 1

   Before you apply: what do you need from me, and what could hold this up?

   A good answer is a specific document list and a straight assessment of the parts of your file that could draw questions. Vague reassurance here tends to turn into a scramble later.

2. 2

   During assessment: how often will I hear from you, and what does silence mean?

   Assessment times vary by lender and by how busy that lender happens to be, so nobody could promise you a date. What a broker could promise is that you hear from them at each stage rather than only when something goes wrong.

3. 3

   At settlement: who is coordinating the valuer and the settlement agent?

   Somebody has to chase the valuation, answer the assessor's questions and keep the settlement date honest. A good answer makes clear that the somebody is not you.

4. 4

   After settlement: when do you review this loan, and how?

   A loan that nobody looks at could drift a long way from what is available elsewhere. Ask what triggers a review, whether it happens without you having to prompt it, and who would be doing it.

Ask that last one especially if you are refinancing. Most people who end up on an uncompetitive rate got there because nobody was checking, not because they chose badly at the start.

What a poor answer sounds like

Some answers are worse than no answer, and they follow patterns. None of these means a broker is dishonest, but each one is worth slowing down for.

• A promise of approval, a rate or a valuation before an application exists
• A prediction about where rates are heading, offered as though it were information
• One lender recommended with no account of what else was considered
• Fees described as standard rather than named and quantified
• Reluctance to put the recommendation, or the reasoning behind it, in writing
• Pressure to sign quickly because an offer is supposedly about to disappear

If a question is met with irritation, treat that as information too. How somebody handles being asked to explain themselves at the start is a fair guide to how they could handle a problem at settlement.