Mortgage broker questions
Table of Contents
- What is a mortgage broker?
- What does mortgage broker mean?
- Why use a mortgage broker?
- How can you buy a house without a mortgage?
- How does a mortgage broker make his or her money?
- How much does it cost to use a mortgage broker?
- How much do mortgage brokers make?
- How do I find the best mortgage broker?
- What is the difference between a lender and a mortgage broker?
- Are mortgage brokers better than banks?
- Has the Banking Royal Commission changed mortgage broking?
- Which professional associations should they be a member of?
- What’s the difference between a mortgage broker and a finance broker?
What is a mortgage broker?
A bank employee can only offer home loan products from the lender they work for. The bank employee works for one bank.
A mortgage broker can help a customer get a mortgage from 30+ different lenders. Mortgage brokers are typically self-employed. The mortgage broker is not employed by any lender. He or she is accredited with many lenders and knows their policies and procedures, but is not employed by them.
Mortgage brokers usually have an aggregator and a panel of lenders. An aggregator provides software tools as well as ongoing professional development for brokers.
What does mortgage broker mean?
A mortgage broker is someone who is able to help consumers apply for a home loan from many lenders. Brokers assess their clients financial situation and objectives.
If a client is in fact in a position to do what they want, their broker can show them different home loan options.
If a client is not ready to do what they want, their broker can show them what steps to take to get ready. A simple example is where someone want to buy a house for say $400,000. A broker can show them whether they have saved enough of a deposit.
Why use a mortgage broker?
1. Feasibility Check
A broker is going to start with getting to know you, your objectives and your financial situation. Once he/she understands your situation, it will become clear whether what you want to do is practical. This can save you a lot of time. It may be the case what you want to do is another six months away. Or it could be the case you can do what you want right now. Or it could be the case a small change in expectations will allow you to do what you want now.
2. One lot of paperwork
Applying for a home loan takes time and effort.
Using a mortgage broker means you’re more likely to only have to provide everything once.
Brokers have software allowing them to lodge your application with a lender direct.
3. 24/7 support
Most mortgage brokers are self-employed. Most are happy to receive a call from you in the evening or on weekends.
Often people are busy with work, commuting and kids.
Brokers can meet you on your lunch break at work, or on a Sunday evening when the kids have gone to bed.
4. Constructive input
You can add as many requirements and objectives as you want to your home loan scenario.
How old do you want to be when you finish paying off your home loan?
How much of your investment property do you want to have paid off when you retire?
Will you pay off your home at retirement?
Are you going to pay off extra for the next three years to start a business?
Do you have an interest only home loan which needs to switch to principal and interest payments?
Will one of you be having three years off work until your newborn is ready for kinder?
The more details you share with your broker about what you want to do, the easier it is for him/her to show you solutions which match what you want to achieve.
5. Your own personal banker without the cost
Once your broker has assessed your situation, he/she can help you with specifics.
For example, you may not feel any rush to get home loan pre-approval. This could be because you haven’t seen a property you like yet.
But this can change in a few hours.
How can you buy a house without a mortgage?
Say a house is for sale for $400,000. If you have $400,000 in cash, plus enough cash to cover any transaction costs, you can buy the house without a mortgage. You will have control of the title for your property.
If you don’t have $400,000 in cash today, but still want to buy the house, you can borrow the money from someone, such as a bank. The bank will take control of the title for your property, until you have paid your loan back to the bank.
How does a mortgage broker make his or her money?
Brokers receive a percentage of the loan taken out by the customer.
For example, let’s say Mary is unconditionally approved to borrow $400,000 from lender B to buy a home. Mary arranged her new loan through a mortgage broker named Sarah.
Mary makes an offer on a house today.
Tomorrow, the vendor accepts the offer.
Settlement is in 90 days, i.e. in 3 months from now.
At settlement, lender B will pay Sarah’s aggregator approximately (0.0065 x $400,000 = $2,600) $2,600.
The aggregator will pay Sarah the most of the $2600, less any fees/commission payable, two weeks later.
The total time it took Sarah to get paid is roughly 5 months, comprised of the following:
• Two weeks for Sarah to arrange Mary’s home loan
• Three months for settlement
• One month for Lender B to pay Sarah’s aggregator
• Two weeks for Sarah’s aggregator to pay Sarah
Is it cheaper to go direct to the lender, instead of through a broker?
Let’s use the example above.
If Mary went to lender B direct, without seeking Sarah’s help, would Mary save $2,600?
No, because lender B would still be offering the same loan and interest rate to Mary.
What’s great about mortgage brokers is their commission/pay is not some extra fee you have to pay.
How much does it cost to use a mortgage broker?
Usually it’s $0.
If a broker is going to charge a fee, it needs to be put in writing to the client. This will occur before the customer accepts any offer by the lender.
A common scenario where a broker may charge a fee is where the client knows he/she will likely pay back the loan in under two years.
Let’s say Mary knows she will be receiving $400,000 in inheritance in eight months time. When Mary gets the $400,000, she’s going to pay off her home loan.
If Mary pays off her home loan in the first twelve months of taking it out, Sarah will have to pay the $2,600 back to lender B.
How much money do mortgage brokers make?
Between 0.50% and 0.80% of the drawn down loan value. This figure includes GST and is before aggregator fees. The lowest and highest commission rates are not typical. The average would be around 0.65% to 0.72%
Between 0.11% and 0.385% of the outstanding loan balance per year. The average would be around 0.165% to 0.22%
According to PayScale, the median pay for a broker in Australia is $58,844.
How do I find the best mortgage broker?
How do you find the best accountant? Or financial planner?
Word of mouth is a good place to start. Do you know someone who has used a mortgage broker? Did they have the same financial situation as you? If so, it’s worth asking them.
There’s a big difference between someone who knows a mortgage broker and someone who has bought a house or refinanced with a broker.
You’ll need to complete a fact-find and provide certain documents. A broker can’t give much specific help until he/she has seen everything.
For example, there may be something on your credit file that restricts which lenders you can use. Is the broker going to check your credit file?
Brokers know prospective clients are likely speaking to more than one broker. They know clients are using the how much can I borrow calculators from big banks.
What is the difference between a lender and a mortgage broker?
A lender is a company who lends the money and will take control of the title, as security.
A broker is usually self-employed and is accredited with many lenders. Brokers are a bit like matchmakers. They need to have a detailed understanding of a clients financial situation & objectives. They need to know the policies and preferences of the many lenders on their panel. Brokers can then suggest lenders and home loan products which may be a good fit for the client.
Are mortgage brokers better than banks?
Which of the following two scenarios would you prefer?
A: A bank employee calls you each year. He/she shows you whether any of their home loan products may be more suitable for you. You’re likely not eligible for the most competitive offers, because they are for new clients only.
B: Your mortgage broker calls you each year. He/she shows you whether any home loan products from 35+ lenders may be more suitable for you.
Has the banking royal commission changed mortgage broking?
Yes, for the better.
There is now a greater emphasis on customer expense verification.
What’s the difference between a mortgage broker and a finance broker?
They are the same.
Finance broker is a new term for mortgage broker.
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