Using mortgage brokers for your home loan

These days, with so many different loans and lenders in the market, you might rely on a mortgage broker to do the legwork for you. Mortgage brokers may be able help you find out about suitable loans and arrange special deals.

However, as with any adviser, do some checking and shopping around yourself. Make sure your broker is finding a competitive loan package or you could end up paying more than you need to.

Most brokers offer only a limited range of loans. They get paid a commission and some may receive other benefits from the lender as well. Mortgage brokers are not financial advisers, and are not obliged to find you the best possible deal unless they specifically agree to do so.

If you just use a broker, you may miss out on some of the cheapest loans in the market. Some of these loans are provided by lenders that don't pay commissions and are therefore not included on the panels of lenders from which brokers select their loans.

Even a small difference in the interest rate can make a big difference to the amount you pay. For example, take two loans, one charging 6% in interest per year, and the other charging 6.5%. The half a per cent (0.5%) difference on a $150,000 home loan over 25 years, can cost you an extra $13,900 if a broker sells you the more expensive loan.

Easy ways to shop around

Shopping around for a home loan, especially on the internet, is easy.

Use CANNEX

Its website (www.cannex.com.au) lets you search for loans according to the type you need, and find the cheapest one. This site is free, independent and used by the industry professionals because its research is widely considered to be thorough and up to date. CANNEX also offers links, where available, direct to the lender so you can read the fine print.

Check magazines

Various consumer and personal finance magazines devoted to mortgages or money can also show you what the going rates are, and then you're much more likely to find the best loan.

Special offers?

Banks, building societies, credit unions and non-bank lenders, including superannuation funds, make special offers as well as standard deals. You may have to phone and ask specifically, but special offers may exist for:

larger loans (in Sydney and Melbourne, you might easily qualify)
super fund members. A number of superannuation funds offer home loans to members at competitive rates
professional groups
shareholders
staff of employers with whom the bank has special relationship.

Smart ways to use mortgage brokers

Once you know the kind of loan you want, note down the interest rate and fees you will probably have to pay. Then contact two or three mortgage brokers over the phone. Tell them briefly about what you want, and see what they can offer.

They might also have some special deals. If so, get a written promise that the terms and conditions are the same or better than the lender will offer you direct. Some lenders may offer a similar sounding product through brokers, but impose special conditions, for example higher fees for paying out the loan early.

Internet brokers have their offers in writing, and you can print the pages you need. Phone brokers can also be quick and convenient. Make a note of their offers, the name of the person you spoke to and the date and time you spoke to them. This can prove essential if there's any dispute later. Some brokers rebate to you some of the commission lenders pay them which will save you money.

If you decide a broker's offer suits you, check to see if they belong to an independent complaints scheme just in case anything goes wrong.

Tips when dealing with mortgage brokers

While most mortgage broking companies operate in a business-like way, standards of training and personal qualifications vary widely across the industry. Almost anyone can set themselves up as a mortgage broker. Some States insist on registration, but this does not guarantee professionalism or fairness.

Large loans and refinancing

The more you borrow, the greater the commission for the broker. Reputable brokers will act responsibly, but you must also be a responsible borrower.

Make sure you can afford the loan. Ask the broker to explain what you'll be up for, and double check with them that you can realistically afford the loan you want. Be conservative, and make sure you will have enough money to live reasonably even if interest rates go up a little.

If you want, use FIDO's budget planner, and check your financial strength using our DIY Statement of Financial Position.

Refinancing means paying out your old loan and taking out a fresh one. If this is suggested, make sure you will really be better off. Refinancing may add extra fees, payable to your old and new lenders as well as stamp duty. Check first if your existing lender will offer you an attractive deal to stay with them.

Home visits

Some brokers may ask to visit you at home. If you have shopped around and a broker is really offering you the best deal, then a home visit may prove convenient to settle the deal.

If you are unsure and are still looking around, think twice about allowing a salesperson to visit you at home. Once you have invited a salesperson into your home, it can sometimes be surprisingly difficult to get them to leave without committing yourself too quickly.

Fee for service

If you are just looking for a home loan, most mainstream brokers will not charge you any fees for their services. Even if you have had a troubled credit history or your financial situation is too unusual for mainstream lenders, you can probably find brokers who will assist you free of charge.

Never, in any circumstances, pay a broker an upfront fee to arrange a loan. In some states, this is illegal. Even where it is not, avoid brokers that charge you up-front.

See Protecting wealth in your home.

More help

Loans and credit
Buying a home
Types of loans
Paying off a loan sooner
Loans, families and relationship breakdown
How to complain

FIDO Website: Printed 02/10/2010