Things to Know Before Choosing a Finance Broker
Paying a mortgage can take many years, so choosing the right one is an important decision to make. There are a number of factors to consider before signing a contract, as outlined below, to help you find one best suited to your circumstances.
Mar 08, 2022
There are two avenues to finding a mortgage:
1. Approaching the banks directly.
This involves manually comparing each loan on the market from each bank, reviewing the terms and policies and then submitting a formal application to the most suitable one.
2. Working with a finance broker
A finance broker will collate your information and shortlist the most competitive options that suit your circumstances. They’ll guide you through your options and submit the application to your chosen bank on your behalf.
Working with a finance broker can help streamline the process, but it’s also important to make sure you choose the right one for you.
Do your research
A good mortgage broker will support you throughout your home buying process – and also be there to support you during and beyond your home settlement. The key is finding a broker that is diligent and trustworthy. If you know someone who has recently purchased a property, it’s worth asking if they can recommend their broker; referrals offer great insight into whether this could be the broker for you.
Before talking with a finance broker, find out if they are MFAA approved. Most MFAA accredited brokers will have a diploma, and some have additional qualifications such as degrees in accounting, finance or economics. They should also have their own Australian Credit Licence or be qualified to act as a representative.
Consider their lender panel
Brokers are limited to working with a list of lenders that they are registered with – known as their lender panel. The more options on their panel, the more product comparisons they’ll have when allocating a loan. A good broker will have a wide range of lenders on their panel and regularly draw upon different lenders, giving you the best chance to get a loan that works for you.
Some lenders may have as little as 6 lenders on a panel, while others may have in excess of 30. It’s advisable to research the size of your brokers lender panel and who they typically allocate loans to.
It’s also important to consider whether your broker is owned by a larger bank, as they may have a disposition to allocate more loans to their parent bank - regardless of whether it’s the most suitable option.
Ask about their pay structure
Mortgage brokers won’t usually charge you for their services. Brokers are paid commission directly from the lender upon allocating a loan. The payment amount is usually based on a percentage of the loan size.
In certain situations, brokers may impose charges at their own discretion for more complex commercial loans (i.e. construction loans), but it’s extremely rare for them to charge you for a residential loan.
It’s important to note that commission rates between different lenders can vary, although the rates tend to differ less for residential loans. Brokers are obligated to advise you of their pay structure, so feel free to request this from them during your application.
Ensure your broker explains things clearly
A good broker will take the time to understand your needs and circumstances, then carefully consider the range of lenders on their panel. They should present you with a shortlist of their most suitable, competitive options and clearly explain the reasons for recommending them.
Steer clear of any brokers that pressure you into accepting a loan before you understand the full terms and conditions – a trustworthy broker will ensure you are fully informed and confident in your decision before you proceed. Additionally, be mindful of brokers enticing you into an interest-only loan because it has a lower rate - it might cost more in the long run if you’re not paying down any principal.
Ultimately, you want to pick a broker that gives you the answers you need and full peace of mind. In an ideal world, you’ll find a broker with your best interests at heart, for the long run. They’ll be a sounding board as your requirements adapt over the years. If you can’t see a long-term professional relationship with them, then they might not be the broker for you.
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Lendforce Pty Ltd is a Credit Representative (ACR: 526857) of Vow Financial Pty Ltd (ACL:390261)