What is a Mortgage Broker and should you use one?

What’s going on guys Its Jordan de Jong here and today I want to talk about Mortgage Brokers, what they actually do, how they get paid, and if you should use one. If you have never heard of a mortgage broker until now, According to MFAA which is the peak national body for professional finance brokers, as of January 2019 59.1% of residential homes loans were settled by a Mortgage Broker, so they are much more apparent than you may think. It’s commonly said that property investing is really a financial game rather than a property game, meaning you can do all the research and due diligence to find the perfect property, but if you can’t get access to the funds to buy it there’s no point. You get access to these funds primarily through lenders, who allow you to leverage your deposit to borrow the full amount of the property, according to APRA as at the end of the June quarter 2019 there where 148 ADIS throughout Australia. ADI stands for Authorised Deposit-Taking Institute, which is just a financial institution licensed by APRA to carry on banking business, including accepting deposits from the public. Of these 148 ADIs there were 93 banks, and of 93 banks there are only 4 major banks which include CBA, Westpac, ANZ & NAB. These four banks are household names and the majority of Australians would have an account with them at one point in time. They are in fact so common that that of the (4.8 Trillion) 4,863,873 Million in assets owned by the 148 ADIS, (3.6 Trillion) 3,664,962 Million of it is controlled by these 4 major banks alone, resulting in a 75% share of all assets, while the other 144 ADIS share the remaining 25%. Because they are so common, and we generally have had an account with them at one point in time with all of our savings and transactions happening through that bank, when it’s time to finally buy a property it’s easy to go straight back to the same bank to apply for a home loan. The problem with going back to the one bank which we feel most comfortable with Is that the one bank will only offer you the rates and packages provided by them, you will be bound and limited to what only they have to offer you. Would you not rather see what other packages are available on the market to make sure that you are getting the best package that suits you? But stop for a minute and think about how you would approach these 148 ADI to view their home loan packages, in fact, try and think about even 10 or more? The truth is, you could probably do some thorough research online for 20 or 30 of these lenders’ packages, but then having to account and read all the minor details and fine print would be exhausting, well this is where Mortgage Brokers step in. Applying for a home loan can be a daunting task and seem overwhelming, they are complex and difficult to understand, especially if you are dealing with multiple lenders and multiple packages. Brokers are very familiar with these lenders and their broad range of products, they are essentially the middleman between you and the lender, multiple lenders want your business and you and the perfect lender so the mortgage brokers jobs is to make this process as smooth as possible. Although a mortgage broker isn’t going to give you all of the available options from the 148 ADIs, they should be able to handpick the top packages and rates that will suit your needs and even negotiate a better deal for you. They do this through asking about your goals, requirements and accounting for them in today’s market, filtering out the lenders to find ones that offer a package that suits your needs, then request reduced pricing from the hand-picked lenders. It should happen in this order, the primary goal is to identify the packages and lenders that best accommodate you and your needs, and then secondly find or try to get the best interest rate for these specific packages, so don’t try and chase the best interest rate you can without understanding that there are different loan structures. Mortgage Brokers will then handle most of the paperwork for you, you still have to provide financial statements and banking details but as far as the home loan application goes, they will ensure that everything is in order. A mortgage broker deals with loan applications every single day, they know the ins-and-outs, they know that a specific lender will prefer to see the information in a specific way and present it to that lender in that format, giving you the best chance of being approved. The best part of using a Mortgage Broker is they crunch the numbers for you before you even apply for a loan, a good broker will not only calculate your maximum borrowing capacity, but give you advice on maximum you should actually borrow, accounting for market trends and fluctuations and ensuring you don’t get yourself into financial trouble. If you not sure what your borrowing capacity means, watch my video on how to increase your borrowing capacity, ill leave it down in the comment section below. A mortgage broker generally will only work with 20 to 40 lenders who they are accredited with and will pay them a commission. Yes, that rights, you as a customer don’t have to pay your mortgage broker, the lender who wins your business does. Commissions usually raise a few suspicions, especially in the property investing game and often raise a big red flag for spruikers, and some brokers will try and push you to the lender that is paying them the most commission. However, by finding a quality investment savvy mortgage broker with your best interest at heart, you shouldn’t have to worry about this, and they will be a key player in your property investing journey. The first step to finding an investment savvy mortgage broker is to ensure they are accredited brokers who are registered with the Australian Securities and Investments Commissions (ASIC) and have an Australian Credit Licence. You should also ensure they are a member of an industry body such as the Mortgage and Finance Association of Australia (MFAA) who implements the MFAA Code of Practice, ensuring that a Mortgage Broker is working in your best interest. In this era of google reviews and social media it’s hard to hide from negative comments, unhappy customers and bad experiences, so ensure you investigate their online presence before even approaching them. Once they look good on paper, in your first interaction there should be a series of questions you ask, my favorite question to ask is do they own property themselves, if so, what areas have they bought in and why? You want your Mortgage Broker to believe in property investing, you want them to have done it themselves, when you immerse yourself in education and research for your own benefit rather than just researching to fulfill a requirement for a job, you absorb so much more and want to continually learn new strategies. When asking why they bought in an area, I would avoid taking on any specific property advice from here, a mortgage broker, unless qualified as a property investment advisor should not give you property advice, only financial and loan structuring advice. Some additional questions should include but are not limited to: How many lenders do you work with? How do you get paid for the advice you are giving me and does that amount vary between these lenders? If so which ones and by how much? If they are a member of the Mortgage and Finance Association of Australia (MFAA), they are required to disclose this information under the MFAA Code of Practice. Lastly, make sure you trust them and feel comfortable with them, buying a property is the biggest financial decision you will make in your life, the right Mortgage Broker can structure your loans correctly to set you up for multiple investment properties in the future. If at any point you feel uncomfortable, pressured or that something isn’t quite right it’s probably your gut trying to tell you something, every industry has shady characters and you don’t want to put your biggest asset in the hands of one. Once the Mortgage Broker has proposed the top available loans, you should also ask them why they recommended the loan to you, what fees will you have to pay, what features are included and what information will you need to provide for the application. They should always give you a few options for loans, talk about the advantages and disadvantages of each one, and then finally let you decide who you want to go with. So, in re-capping should you use one? We’ll I would personally never apply for a loan without going through a mortgage broker, the benefit of them crunching the numbers before applying, ensuring that I don’t overcapitalize, handpicking the best lenders and their packages and then presenting them to me to choose from. Not to mention they put in some serious hustle to chase up the loan before settlement to ensure your transfer goes smoothly, all at the cost of the lender, why wouldn’t you? If you think I’m being biased in any way shape or form, I’m not a mortgage broker, I don’t plan to be one, I don’t know any personally but I do use one for all my loans and understand the value of having a great team around me. Have you ever used a mortgage broker? I want to know your experience leave a comment below. If you are currently with a mortgage broker that hasn’t done all of these things in the past, it might be worth considering switching next time you want to re-finance or applying for a new loan. Just note the switching between brokers in the middle of applying for a loan could affect your credit rating, the more loan applications you put forward in your name, the more hits your credit report gets. The more hits your credit score gets the riskier it looks to lenders, so once you have found your investment savvy mortgage broker stick with them throughout the loan application process. As always, seek your own professional financial, legal & property buying advice for your current situation, these videos are just my opinion and should never be considered personal financial advice. Until next time, happy house hunting.

Jordan De Jong

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