There are a number of potential pitfalls in relying on a mortgage broker for the best home loan solution ... particularly given the enormous growth in the broking industry and the recent entrance of new players.
Getting a broker to arrange your loan can certainly save a lot of time and hassle, but borrowers still have to do their homework to ensure the service they expect is the one that's delivered.
Obtaining genuinely objective recommendations from brokers, confusion over just who's a lender and who's a broker and lender delays in processing applications mean that using a broker is not always the quick and easy solution to home borrowing it may at first appear.
With the proportion of loans arranged through brokers rising from nowhere to around 30 percent in just a few years, the industry has attracted all manner of people and organisations wanting to enter this lucrative commission-based industry.
Establishing that any broker you intend to use has experience and qualifications as well as being committed to the industry code of practice is vital to ensure you're getting the best loan for your needs, within a reasonable timeframe.
A number of lenders are also now acting as brokers and some borrowers may be confused over whether they're dealing with an independent broker offering a range of loans, an agent for one lender only, or someone who wears both hats.
Borrowers must establish with any loan representative just what their role is and how they're being paid so they can judge the integrity of loan recommendations being provided.
Once a broker is found and a loan recommended, some lenders have had difficulty coping with the volume of loans coming through the broker channel leading to delays lasting weeks.
This can be a major concern for those home buyers who have little time to arrange loan finance upon purchase.
The 12 things you must know before obtaining your home loan through a broker:
- A broker should have a wide range of home loans from a wide variety of lenders, eg. banks, and non-banks. The wider the choice, the better the chance of finding the loan that suits you best.
- Check the qualifications and experience of your broker, even ask for references from previous borrowers. Are they an MIAA member? Have they completed training courses?
- Ensure your broker is not an agent for one lender in disguise. Some lenders now operate as brokers too so establish with any broker representative exactly what their role is.
- Make sure your broker discloses all commission and payments received so you can judge whether a particular loan recommendation is being influenced by how much the broker will be paid.
- Does the broker charge a fee? Many brokers will not charge borrowers for using their service, others will, so enquire about fees at the outset
- Ask your broker how the loans they offer are researched and rated. Good brokers should be able to clearly outline their criteria
- Ask your broker to provide a formal comparison of any loans recommended including the upfront and ongoing fees and the AAPR (average annual percentage rates). Ensure the AAPR is calculated specifically for the amount you want to borrow.
- Always do some double-checking yourself to satisfy yourself you've been given unbiased and correct information.
- Check what service is offered by the broker after the loan is negotiated. Will the broker be available for subsequent loan enquiries? What happens if there is a dispute between you and the lender?
- Will your broker comply with the Privacy Act to ensure the security of your personal and financial details?
- Your broker should have professional indemnity insurance. This safeguard will help you in the event of legal action.
- As a last resort, the independent Mortgage Industry Ombudsman Scheme (1800 138 422) is available if there is a dispute you can’t resolve with your broker directly.