How to find a good mortgage
You need to consider whether you really want to deal with a broker who submits 80 per cent to 90 per cent of their business to the big four banks. If they do, will they do the right thing by you?
If you’re in the market for a property loan a broker who can get the most from dealing with a panel of lenders will be worth the expense. But there are good brokers and not-so-good brokers, so it’s worthwhile knowing the work they do and how they are paid.
Some brokers will only use the big four banks and one or two other banks. This is arguably considered poor business practice, possibly stemming from poor sales skills or bad habits.
A broker should be there to offer choices which may not always be available at a bank branch and not to offer a product based on a convenient relationship with a lender. A lender and product should be chosen which benefits the borrower, not the broker.
While this can be often achieved with just a few lenders, not every deal is straightforward and a good broker will have relationships in place with many lenders.
A true broker compares loans and offers clients unbiased choices, which include the products from non-banks as well as banks. They are not purely rate driven, but rather focus on policy, turnaround times (from submitting your loan application to settlement) and choosing a lender which can provide excellent assistance from a business development manager. The best rate is not always the best loan.
Who’s in charge here
The banks incentivise many brokers by providing preferential status, which can include higher commissions and better treatment. This should not be the reason a lender is chosen for the client.
If it is the best loan for the client’s circumstances and the preferential treatment the broker may receive will aid them in providing an excellent service, then of course it’s worth considering. But this would not be the case with every type of client.
Occasionally a broker may submit a loan on behalf of a client to one of the few lenders they limit themselves to only to discover the lender does not have an appetite for the loan. The deal would then need to be taken elsewhere, but the client’s credit file will have been tainted with what could have been an avoidable credit enquiry.
Strength in numbers
Brokers belong to aggregators, which allows them access to certain lenders that may require a minimum volume of deals. By combining the business of brokers, aggregators achieve bargaining power with lenders but they take a clip of the broker’s commission or charge a fee. For many brokers it’s worth it, as aggregators can provide valuable tools such
as loan comparison software, training and support.
Why using a broker is often better than going straight to the bank
1. A good broker can compare the servicing calculators of different lenders to try to make a deal work. Servicing is one of the main considerations lenders use when deciding if they want to approve a loan. The borrowing capacity varies between lenders, as does lending policy and the types of income that are acceptable (as well as the percentage of those incomes.)
2. The type of property can limit the choice of lender, and a broker will save time taken shopping around for a loan to match your investment.
3. A broker can help to speed up issuance of loan documents.
4. Applicants have been known to do silly things, such as shop around for the best rate, making enquiries and inadvertently degrading the quality of their own credit history. Each time a person shops around a credit hit on his credit history may be generated, making it less palatable for a lender to want to deal with that borrower. A not-so-good broker can make the same mistake. A good broker can shop around without submitting the loan.
5. Some lenders service existing debt at existing rates. If the investor has other property debt it can work in their favour. Some calculators do not take into account deductible interest, which can lead to a negative impact on servicing. A borrowing capacity can differ by many hundreds of thousands of dollars. Good brokers investigate all these options for you.
6. Self-employed borrowers sometimes prefer to avoid tax rather than to increase their taxable income on paper. Had they been more honest to the taxman, it could have aided them in increasing their borrowing capacity. This could relegate them to source a “low documentation” or “alternative documentation loan” and, while these loans serve a purpose, they can be more expensive, which reduces one’s borrowing capacity and the repayments on a loan. If a borrower is more willing to provide tax returns, and those tax returns show enough income, she could then be eligible for a better rate, making it easier to borrow more for the next investment purchase. A good broker can educate you in different lenders requirements.
Don’t just ask a broker how many lenders they have on their panel – that’s the wrong question. Rather, ask how many lenders the broker uses on a regular basis. You need to consider whether you really want to deal with a broker who submits 80 per cent to 90 per cent of their business to the big four banks. If they do, will they do the right thing by you?
Andrew Crossley is a property investment advisor and founder of Australian Property Advisory Group.Source: www.afrsmartinvestor.com.au