10 Essential Questions for your Mortgage Broker
10 Essential Questions for your Mortgage Broker
Thinking of refinancing? Or maybe you’re looking to buy your first home? With Australian house prices soaring to extreme levels over the past few years, odds are you’re looking at a fairly hefty mortgage. So finding a competitive loan that matches your financial needs is critical in keeping fees and repayments to a minimum.
Enter the mortgage broker.
Today, mortgage brokers sign up almost half of all new loans. But how can you filter the good ones from the bad ones? How do you know they are looking after your best interests?
To help you, we’ve put together 10 key questions you should ask before handing your mortgage needs over to a broker:
1. Which lenders do you represent?
Make sure they have a wide and varied choice of lenders and products to choose from including online lenders that often have access to the most competitive products.
2. How do you get paid?
A good mortgage broker will be an advisor, not a sales person. While it’s common for brokers to earn their living through commissions, this shouldn’t influence their recommendations. The products and lenders they put forward should always be the most suitable and competitive options for your particular borrowing needs.
3. Why are you recommending these products/lenders over others?
A good broker will be able to educate and advise why they’re recommending a particular product and which features will benefit you. It may be that your financial circumstance suits a loan with extra features (although these tend to come with higher rates and fees). Or perhaps you’re more suited to a loan with a fixed interest rate, or an interest only loan. Ask for comparisons against other similar products to make sure their recommendations are competitive.
4. What is the comparison rate?
Many loans offer competitive interest rates, but come with higher fees and charges. The comparison rate reveals the ‘true cost’ of a loan factoring in all of these things. Comparison rates should always be considered when weighing up products.
5. What will my repayments be?
Make sure you understand the amount and frequency of your repayments. Factor them into your ongoing living costs and work out whether they’re realistically affordable.
There are also a range of mortgage calculators to help you manage your finances.
6. Are there any loyalty benefits?
Lenders often lure customers with low introductory offers, but you want a loan that is competitive throughout its entire life span. Bonus rate drops after a period of loyalty could make a significant difference in paying off your loan.
You may also like to ask your broker if they offer a rebate. While uncommon, some brokers refund part of their commission after settlement as a type of loyalty reward.
7. Will I have to pay Lenders’ Mortgage Insurance?
Lenders’ Mortgage Insurance, or LMI, is usually paid when the Loan Value Ratio is 80% or more to protect your lender against your default. It can cost thousands of dollars as a one off payment, so you want to know what you’re in for prior to signing the contract.
8. What will I need to pay for the deposit?
Some lenders offer more flexibility than others. If you have a good credit rating, banks could lend you up to 95% of the purchase price. But consider putting down a larger deposit because lenders sometimes offer more competitive interest rates for lower risk loans. And if you can put down a minimum deposit of 20%, you could avoid paying Lenders’ Mortgage Insurance. Lastly, the higher the deposit, the less you’ll need to pay in interest over the life span of your loan.
9. What information will I need to provide for my application?
The documentation required varies from lender to lender. Most banks will want to see at least 6 months’ worth of bank statements, credit card statements, statements for any other debt and 100 points of ID. So make sure you’re prepared and have all necessary documents at hand come application.
10. Are there any exit fees?
Many borrowers aren’t aware of exit fees until they have to pay them. Exit fees are sometimes applicable when you leave a loan early. They’re usually hidden somewhere in the fine print of your contract. As financial situations can change over the period of a loan, it’s important to have the flexibility to refinance without facing hefty charges.
If you do decide to go with a mortgage broker, do your homework. Don’t be afraid to ask questions and make sure he or she is a member of the Mortgage & Finance Association of Australia (MFAA) as they have to adhere to high ethical standards including disclosing the commission they’re receiving from the lender.
Over to you, what’s your experience with using mortgage brokers?
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