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Finding the right home loan can be a complex and time-consuming task, especially for first home buyers. Many borrowers navigate the daunting number of options by using a mortgage broker to source their loans – around half of residential mortgages are now written by brokers in Australia. But is a broker for you?
Mortgage brokers are intermediaries who stand between the borrower and a panel of lenders; their job is to understand the borrower’s financial situation and goals (brokers have a duty of care not to recommend a loan that will cause the borrower “undue hardship”). They match the borrower to a suitable loan, and package the loan to the recommended lender.
The broker is paid a commission by the lender, and under legislation – the National Consumer Credit Protection Act – the estimated commission is disclosed prior to any application being made on behalf of the borrower.
Brokers are a good idea for number of reasons:
- Rates: mortgage brokers know where to find the best interest rates. Interest rates aren’t everything but the difference in a 25-year, $500,000 standard variable loan at 4.7 per cent, and the same loan at 5.7 per cent, is $294 each month.
- Fees: You generally don’t have to pay for the services of a broker. They are paid commissions by the lender once your loan settles.
- Expertise: brokers work in this market every day, so they can ensure their client is taking on a loan that suits them and their goals. From a basic variable rate loan, to a 100% offset account mortgage – and all the points in between – brokers work with you to not only find the right loan, but keep you out of the wrong one.
- Selection: most borrowers start with their current bank or lender, and perhaps research one or two other loan providers. A mortgage broker has hundreds of loans they can show you and most have software that can search the loans by your own criteria.
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- Time: it’s time-consuming work to create a short list, hit the phone and make appointments with loan managers. Brokers take the leg work out of the process, create a short list with the pros and cons of each loan, and then initiate the application from their office and manage the process through to settlement.
- Paperwork: one of the frustrating aspects of applying for a mortgage (for first-timers and experienced borrowers alike) is completing all the forms correctly so they are not returned for re-submission. Because they are experts, brokers understand the pitfalls of the application process and know how to speed it along.
- Refinance: brokers are very useful when refinancing an existing mortgage. Refinancing can be complex and even experienced property owners often use brokers to do it.
- Advice: along with loan selection and applications, brokers can offer advice and experience. For instance, too many unsuccessful mortgage applications can hurt your credit rating: brokers generally know where your application is likely to have the best chance of approval to avoid this problem.
The best way to look for a broker is to ask around, see who’s used one and ask what the process was like. You can also look for broker firms in your area and have a look at the individuals’ profiles on their web page. Then go and meet one. Most mortgage brokers are happy to have a chat about what you’re looking for and how they can help.
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