When you have found your dream home, the next logical step is to hunt for the most suitable mortgage for you. Your mortgage will help put the house keys in your hands. And one way for you to achieve it is to work with a professional mortgage broker.
A mortgage broker will act as your guide throughout the lending process. It means that this person will be there assisting you from start to finish.
What is the job description of a mortgage broker? And how can you get help from one?
Let us answer the questions above one by one.
What Exactly is a Mortgage Broker?
A mortgage broker is a professional who serves as the intermediary between the homebuyer and potential lenders. The main job is to be your representative to different banks. This way, you can find and choose the best mortgage lender to get competitive interest rates.
Mortgage brokers have a comprehensive network of lenders whom they have worked within the past. With such a connection, it becomes easier for you to discover the mortgage that suits your situation.
One more thing that you have to remember about mortgage brokers is that they are licenced and regulated.
They have a lot of tasks, including:
- Gathering your documents
- Verifying your income
- Pulling your credit information
All these details will be used so you can apply for a loan with different lenders in just a short time.
When you have decided on a loan and lender, the mortgage broker’s job does not end here. It is still the broker’s responsibility to collaborate with the underwriting department of the lender or bank. Aside from this division, the mortgage broker will also keep in touch with the closing agent or the title company, as well as your hired real estate agent. This way, everything about the transaction will run smoothly until you have finally approached the closing day.
How Do You Pay Mortgage Brokers?
After the Hayne Royal Commission criticised the mortgage broking industry, brokers were required to serve borrowers – not the lender. In addition, the intending borrowers should pay the fee of the broker rather than have the bank or lending organisation pay them.
The supposed “trailing payments” lenders give each year may be banned soon. In two to three years, upfront commissions would be outlawed as well. The government may not be so welcoming with these recommendations, although changes will soon be implemented.
The government has confirmed that borrowers should become the priority of these mortgage lenders. And by July 1 2020, they should no longer accept trailing commissions. As for upfront commissions, however, they will still be reviewed in the next three years.
So, the Question is, How Do Mortgage Brokers Get Paid?
The method of payment is straightforward and standard as broken down below:
Banks will give the broker a commission for every successful loan. This particular commission will be divided into two parts:
- The first one being the upfront payment
- The other is the trailing commission
If the broker had issues, the lender has the right to terminate the commissions.
The rates will depend on the lender but will mostly range from 0.46% to 0.65 (upfront commission) based on the loan. On the other hand, the trailing commission usually starts at 0.1% up to 0.35% of the current home loan.
Some lenders provide bonuses, including loyalty payments, such as shopping vouchers and paid holidays.
Frequently, loan aggregators support mortgage brokers by offering back-office assistance.
In short, lenders pay brokers. This way, you, the homebuyer, will not have to shell out any money. However, some brokers will charge you a direct fee, along with the lender’s commission.
It does get confusing because of the various modes of payment. However, if you are unsure, you may want to look around first to ensure that you are getting a good deal out of the transaction.
Are mortgage brokers the same as working with a bank or a loan officer?
Since mortgage brokers get paid by banks or lenders, it may seem like they are similar to loan officers. To avoid misperception, here are the differences:
Loan officers work for a lender. They have a fixed salary, along with their bonuses, which they get every time they write loans for their lender.
As for mortgage brokers, they work in a brokerage firm. Sometimes, they are independent workers. They do not deal with just one mortgage lender. Instead, they have a network of lenders, and their salaries come from the fees that the lender paid for.
Understanding how mortgage brokers work lets you determine whether or not you should hire one.
Why Hire a Mortgage Broker
Before seeking the help of a mortgage broker, you may be wondering if this professional is right for you. As mentioned above, brokers will apply loans for you. They will contact various lenders and shop for a mortgage that meets your budget. If you are interested in a loan, the broker will help you get even more attractive terms.
With the help of a mortgage broker, you can save time – and money – if the application is successful. In reality, you need to allocate several hours to apply for a loan. Plus, you have to consider going back and forth just to get a good deal. The underwriting process is long and exhausting. The transaction can quickly go astray if you do not know what you are doing. You can get rid of all these hassles with the broker’s assistance.
If you are hesitant as to whether or not you should hire a mortgage broker, the advantages of getting one will surely guide you:
You Get to Save Legwork
Brokers communicate with several lenders from the start of their career up to now. The industry is vast, and you cannot just rely on popular names to give you the best deal. In fact, the unknown ones offer the most competitive rates. If you want to save money, you should steer away from well-known lenders, especially those with unclear payment terms.
Brokers know most of the lenders you may not have even heard about. They understand the ins and outs of the financial industry, particularly the borrowing aspect. Therefore, they can introduce you to the most attractive deals without you doing anything.
You Can Save Money
Believe it or not, you will spend more if you do not have a broker helping you out. There are numerous types of fees involved when you take on a new mortgage. If you work with a new lender, you will also have to pay origination fees and application fees among many others.
With the mortgage broker’s skill, it is possible to waive all or at least some of these fees. You can already see how you can save hundreds to thousands of dollars
The Broker Will Guide You in Knowing How Much You Should Borrow
If you work alone, you may be a bit one-sided over how much you should pay. The consensus among consumers is that the lowest priced offer is the best deal. Many mortgage brokers will not agree. There are several factors to consider when looking for a mortgage, including the terms and conditions.
With the help of a mortgage broker, you can truly specify your wants and requirements. You can also set a budget that aligns with your mortgage goals. It will become much easier to work out how much loan you need vs what you want. This way, you do not struggle when it is payment time.
Brokers Know What They Are Doing
When you hire a mortgage broker, you have an expert in their field. They understand how the market moves, along with the mortgage products available. They have access to information that you would not encounter even if you search thoroughly online.
Brokers have acquired years of experience in the industry. They provide advice to people when it comes to mortgage choices. Therefore, they know the potential hazards and pitfalls, along with the best options for every situation – including yours.
Brokers Are Always on Your Side
A common misconception with mortgage brokers is that they work for banks or lenders. It means they do not genuinely care about the homebuyers. While they do endorse certain mortgage products, it is only because they know they are suitable for the client.
The government has required these brokers to focus on the consumers and not the financial organisations. Therefore, their goals should correspond with the clients’ target, which is to acquire the best home loan.
Usually, the broker will review your situation once every 12 months, at the very least. If there is new information, it will be evaluated against your current borrowing structure. It enables the professional to determine whether or not the loan still meets your present requirements.
If something goes wrong, you should be able to count on your hired broker. You may get additional assistance when getting refinancing so that you land on a more favourable loan.
Mortgage Brokers Will Save You Time and Stress
Borrowing money from banks is not as easy as it seems. If you have tried it before, you know there is a lengthy procedure that you will go through. Mortgage brokers have encountered all sorts of problems and setbacks when applying for a loan. They already know how to approach these difficulties.
Plus, you have to face numerous terms and policies that a bank implements. Sometimes, they differ depending on the organisation. The mortgage broker that you hired can provide you recommendations while speaking in a way that decodes the jargon for you. It will help you understand what your options are and which you should choose.
Looking for a mortgage is stressful and time-consuming. You do not have to put yourself through this ordeal. Let the broker work for you, so that you can get the best rate possible without dealing with banks.
The Qualities of a Top Mortgage Broker
Just like in products and services, no mortgage broker is alike. If you are looking for quality assistance, you want a professional with outstanding integrity. However, there are more than 13,000 independent mortgage brokers in the country. With so many choices, how do you know which one to hire?
To help you out, here are the qualities that you should look for in a mortgage broker:
The Mortgage Broker Should Have a Licence
Real and trustworthy mortgage brokers have a licence. They have been trained for years to provide financial advice. Serving as an intermediary between banks and borrowers is not easy. Over the years, they obtain an extensive network, industry knowledge, and other resources that allow them to stand out from the crowd.
To get a licence, brokers should first complete a Certificate IV in Finance and Mortgage Broking. When acquired, the broker can operate within Australia. The certificate also permits them to study further.
After getting the licence, the next step is to have a finance diploma. It may not be a requirement, but it provides brokers with a deeper understanding of the principles and procedures in the industry.
Once education is completed, the broker will need to apply for a licence, which is the Australian Credit Licence (ACL). It is obtained through the Australian Securities and Investments Commission (ASIC). Some brokers do not get this licence; however, it means they can only serve as a credit representative under a company or individual with ACL.
Since July 1, 2011, all mortgage brokers and credit providers should be licenced under the ASIC. A licenced professional knows the requirements and responsibilities under the National Consumer Credit Protection Act.
The Broker Should Present You With a Large Inventory of Mortgage Options and Programs
Homebuyers have different needs and cases. Therefore, the mortgage broker should have an extensive list of mortgage products. This way, clients can choose what is suitable for their budget, requirements, and overall situation.
Another reason why it is vital to have a large inventory is that it attracts more lenders. Borrowers can decide which among these lenders provide the best mortgage loans.
Brokers Should Be Transparent With Their Clients
A good mortgage broker is honest and gives you all the information you require. If some details are kept in the dark, it is highly likely that the interest rates will change. Before you start working with a broker, you should have everything in writing. Get all the facts, including the total fees that will be charged to you. It is also essential that you are aware of the repayment plan.
The Broker Should Know How to Listen
Since your situation can be different from the last client, the mortgage broker should fully understand your case. It will be much easier to look for the right loan if the broker knows your case from top to bottom.
A respectable broker should also protect you as the client, especially during volatile times. On the other hand, untrustworthy ones will just see you as a way to earn profits.
The Broker Should Be Ready to Answer All Your Questions
Even those that you already asked before.
You know now that the mortgage broker will help you find the best loan for you. But what exactly is the “best loan?” There are numerous considerations, but a broker should be able to answer all your enquiries, including complex ones. For instance, you can ask about the types of loans available, such as fixed and adjustable-rate loans. Then, you can probe a little further by figuring out the pros and cons of both. You can also be more inquisitive about the interest and if it is possible to lower the rates for you.
Other things to know about are the down payment, origination fees, and additional costs like appraisal and title policies.
Steps to Find the Best Broker for You
When you are ready to hire a mortgage broker, the first thing that you may want to do is to Google the operating brokers in your area. It helps to go local at this point so that it is easy to meet the broker in person. This way, you can interview the broker and determine whether or not you are willing to work with them.
After you have searched for the mortgage brokers in the area, the next step is to look up reviews about them. You can head to Google, Facebook, or other websites that review the mortgage brokering services.
Despite having good reviews, you should not rush into hiring. Talk to the mortgage broker first. By now, you may have already narrowed down your list of potential brokers to hire. Those with good reviews stay in your list while others with lacklustre and too many negative reviews can be removed.
However, these reviews should not be the only reason why you should hire them. Be sure to talk to the mortgage brokers first. Listen to their experience and ask them about how they deal with problems. Perhaps relate the questions to your situation. For instance, if you have slightly negative credit, you may want to enquire how they will help you find better rates.
In line with their experience, ask how long they have been in the industry for. Also, enquire details about their previous clients. Use this chance to get a good sense of their working history. You will also determine if they are suitable for your situation.
Aside from these mentioned methods of finding a good mortgage broker, here are the additional steps to take:
Check the Membership of the Broker
The mortgage broker should be licenced under the ASIC and should be a member of the FBAA or the MFAA. These two associations give you an idea as to whether or not the broker has met the education requirements. Plus, being a member of either the FBAA or MFAA gives you the peace of mind that the professional is updated on the newest compliance and policy procedures in the country.
If you find a broker with excellent communication skills but is not a member of the mentioned associations, consider it as a red flag. One reason why they may not be under the FBAA or MFAA is a past issue that may have resulted in them leaving the industry. You can, of course, check online or ask the broker about it.
Ask About the Home Loan Research Methods
The broker should not just focus on one mortgage product. There must be numerous programs available so that you can choose the best one for you.
Many brokers will tell you they can provide you with the lowest rates. In this case, you should ask how they can do it. Also, be vigilant because low rates are not often the best because of the associated fees and restrictions.
Knowing how they research the loans can give you an idea as to how your mortgage loan will be processed.
Enquire About the Turnaround Time
You should also ask how long you have to wait for your mortgage application to be lodged. The turnaround time can make or break your ability to purchase the house. If you have a contract for 15 days, the mortgage broker should get you a loan before the deadline.
Know About the Rejection and Approval Rates
Not all submissions of applications are successful – and you should understand this fact. Asking relevant questions will help you find out if you have a high chance of getting approved.
Ask About the Fees
The commission is a big part of being a broker. You should only hire a mortgage broker who is transparent with the costs of the service. While brokers do get paid by banks or lenders, it is still possible for them to charge you.
Once you have found the best mortgage broker, get all the details in writing. Everything should be on paper, including the commissions, products, fees, and timeframe, if possible.
If you plan to buy a home within the next six months, you should begin talking to mortgage brokers. Get recommendations online and from your friends and families. This way, you can be sure that you will work with the right broker for you.