Aus Credit Licence 394343
How Do You Choose A Good Mortage Broker?
The first way I would look at this question is to start at the other hand and first ensure that you are not dealing with a BAD mortgage broker. In other words, you first need to check on their basic qualifications and licensing.
- Your mortgage broker must be a Mortgage and Finance Association of Australia (MFAA) member. You can check their membership here: http://www.mfaa.com.au
- Your mortgage broker must be a Credit Ombudsman Services (COS) member. You can check their membership here: http://www.cosl.com.au
- Your mortgage broker must have minimum qualification in Diploma of Finance Broking.
- Your mortgage broker must have a large panel of lenders (at least 12 but ideally
over 20). - Your mortgage broker or someone supervising him within the office must have at least 3 years of experience in the industry.
- Your mortgage broker must be either licenced directly with ASIC (preferably) or be authorised by someone who is licenced. You can carry out reference checking for ASIC licencing here.
Now at the basics are covered, what else should I look for in a mortgage broker?
Once you have established that your mortgage broker meets the very minimum requirements above, you can then consider his or her credentials further:
Does your broker have good support? A good broker must spend a lot of time with clients which in turns hampers his or her capacity to chase the lenders efficiently.
If your broker does not have the admin support that is needed the chances are that however good they are with you and their product / structuring abilities, the trouble will start once the application is lodged!
What lenders has your mortgage broker used in the last 2 months? You want someone who has used at least four or five different lenders within that time frame.
Unfortunately some average brokers are comfortable using 1 or 2 lenders which they recommend to everyone regardless of circumstances. That would be a strong indicator that you are unlikely to get the best possible loan.
Has your broker disclosed all the commissions and benefits he will receive from your business? It is a legal requirement that is often overlooked but crucial!
You need to have a very clear picture of how your broker will benefit from your loan as it could impact his recommendations.
Has your broker been recommended to you by someone you trust? If not you might want to check online reviews, Facebook page and the like to avoid anyone with a past made of horror stories.
Can your broker or his office offer you professional advice regarding the risk associated with your new mortgage? Any sizeable debt brings a certain amount of risk which you need to be made aware of and which you need to be explained how to manage.
Your broker or his office must be able to offer you the appropriate insurance – be it life, income or trauma.
Has your broker ever been recognised by his peers or the public for his work? Are there any local paper articles about his or her good work? Have they been awarded any industry prizes.
Either of these will give you further reassurance regarding the quality of the advice you are receiving.
Ticked all the boxes?
If you've been able to tick all of the above with the broker you're considering using, then chances are you're on the right track. It's a critical decision and should not be taken lightly – which is why even when everything is right on paper, you should still give some credit to your gut feeling and only go ahead when it feels right.
Why A Good Mortgage Broker Will Always be Better Than DIY
Even in a time when the internet rules, the banks spend million of dollars on advertising and have mobile lenders that will come to one's place, a good mortgage broker will always be better to organise one's finance!
What's wrong with using the internet to apply for a loan?
Let's start with the internet: you can compare home loans, you can see advertised rates and you can read review about this lender or that solution but you will never get the full picture.
- What about the best possible structuring?
- Would you benefit from a guarantee?
- Should you cross collaterise your securities?
- What are the difference in mortgage insurance premium in between the different lenders? What about negotiated rates which are not advertised?
What about shopping around the banks myself?
Let's then move on to any one bank or the self shopping option. I think it is obvious enough: if you can benefit from the personal service of your own mortgage broker advocating on your behalf – most often at no cost – why would you not? It will undoubtedly save you time and money!
A mortgage broker will be able to compare current offerings for your circumstances in much more depth, and much less time, than it would take to do it yourself. The broker knows and understands the jargon, the policies and requirements from different lenders and their niches.
Even if you want your loan to be with one specific lender you should speak to a broker who will be able to negotiate with them for you: they will never be as competitive as when they are made to beat their competition!
Examples of how a mortgage broker can get you a better deal...
1. Let's say you're shopping for a home loan for a new purchase and needs to borrow 85% of the property value. The internet will give you plenty of options to look at.
Eventually you find out that Lender A has the lower fee and a fantastic interest rate of 6.80% which is much cheaper than anybody else which surely makes it an easy decision not requiring the assistance of a broker!
Or does it?
A broker would have been able to tell him that Citi Bank allow for 85% loan without mortgage insurance for purchases and even though their rate is higher the initial savings of $5,000 way out do the difference in rates.
2. You have a mortgage on your property and have just purchased an investment property so that your total borrowing will now be $1,200,000. After speaking with your bank's mobile lender, you've been offered a great 1% discount on the variable rate, and you're really excited about the deal you've negotiated.
On the other hand, a mortgage broker could have either negotiated a better offer for you with the banks by tendering your business to all of them, OR could have introduced you to a smaller non bank lender which are currently offering incredibly good deals for this type of loan.
Either way a good broker could have saved him thousands of dollars over the life of his loan!
3. In the last example, you have a $16,000 car loan which has a 13% p.a. interest rate and after browsing the internet to find the cheaper lender you proceed with them to consolidate your car loan into your home loan.
After the valuation is returned to the bank you're advised that you does not have enough equity to proceed with the consolidation.
A good mortgage broker would have advised you that some smaller lenders will offer a $20,000 credit card at the mortgage interest rate which you could have use to refinance your car loan without affecting the current loan to value ratio – saving you thousands in interest and easing the burden on his budget.
So what does all this tell us?
The only difficult question to answer is how to choose a good broker – we'll help you with that in our next blog, so stay tuned!
Is Australia Really The Most Expensive Place on Earth?
There are many studies out there being carried yearly to review prices in different countries around the world, and after having the most expensive coffee, houses, broadband etc... I have read last week that a leased property in Sydney prime retail precinct is now more expensive than London or Paris or New York!
Surely that has to be the ultimate proof that we are out of our heads?
I beg to disagree: all the studies are conducted from overseas and use a standard currency such as the US dollar for all the countries being looked at. When the Australian dollar goes up 25% against the other major currencies in 12 months, it means that for someone earning Australian dollars, everything here has gone up by 25%.
However for anybody making an income within Australia well... nothing has changed. That is for the retailer who is renting a shop in Sydney and who's more than likely to be selling his goods in Australian dollars, his rent is still what it was. And if his suppliers happen to be overseas, he could actually be even better off, as he's now paying less for his stock.
Same applies to all the other items on the list above, whether we're talking about coffee or property, they're the priciest in the world because our currency has increased significantly – but it only really matters if you are spending your money in Melbourne and earning it in New York.
More to the point, it's been calculated that once the average increase in income has been taken into consideration we are not paying more for most of our bills and daily items than we were 6 years ago! (Although that is an average, and won't apply to everyone).
Give it another 5 - 10 years and let the other developed economies pick up their messes and before you know it our currency will go back to normal level and then guess what? We're going to be cheeaaap again according to these studies! And then again for us living, earning and spending here that will make no difference.
Doom and Gloom or Economic Sunshine
For months now I have been struggling with a strange phenomena which is taking place in Australia, something that is against logic and defies rational analysis: we're feeling bad, we're feeling financially insecure, we are whining to whoever will listen and yet... then there is the immigration, retail is down, jobs are on the line, the 2 speed economy, global financial crisis 2, the housing market and what not...
Surely it's a miracle that we still wake up in the morning?
Yet we are in such an enviable situation! And no I am not referring to the holy mining boom to come, or the mining boom which has not translated into the real economy yet or the mining boom that is going to bust! Enough mining boom for the time being but let's look at where we stand:
First and foremost we are a developing country!
Not by living standards of course – which are very high by any measure – but in terms of age, development and most luckily opportunities. With only a couple of hundred years of development under its belt our huge island is miles and miles behind Europe, and even the USA, in terms of what has been done and what can still be done! It's exciting and also very rewarding to see this country grow fast to catch up with its cousins. We will need more people in Australia: skilled and motivated migrants as well as more Australian born workers to help us reach the incredible potential and these people mean growth and wealth for everyone. Whether we are full or not at 22 million is a false debate when the real question is who we need here and what is needed to accommodate a bigger better Australia.
Bank Of Melbourne To Use Mortgage Brokers
As you may or may not know, Westpac has decided to get rid of its recently purchased St-George in Victoria to replace it by Bank Of Melbourne – a purchase made in 1997 and binned in 2004. Confusing?
Maybe a little, but for banks it's all about branding and proximity, and in order to communicate different messages to different target audiences they need to use a variety of vehicles. So it seems we are now getting a new bank.
I am not sure how much this is going to increase competition in the market, because while most people arranging home loans in Melbourne are not aware of the ownership structure of the bank, the reality is that it is unlikely that a Westpac owned brand is going to rock the boat too much.
But I'm getting off track what I wanted to discuss was Bank of Melbourne's recent change of heart in deciding that after all they are going to use mortgage brokers.
Lenders argue that a loan written in the branch is up to 30% more profitable than one written by a mortgage broker.
That is, if you have a very narrow reading of the figures: assuming that the client would have decided to use this lender in the first place and also assuming that the branch staff could accommodate the customers needs, then yes, the branch loan would be 30% more profitable I am sure. After all, the mortgage broker needs to be paid an upfront commission and a trail commission.
However, when you consider the amount of money that a lender would need to outlay for these 2 assumptions to materialise, you have a brand new equation to look at:
potentially millions of dollars need to be spent in order for a customer to walk into bank A instead of bank B.
Then there is the cost of the premises for the client to walk in, and finally the cost of the staff (including training) that needs to be implemented in order for the staff to successfully assist the client. I'm not sure if these costs have been quantified, but I have a gut feeling that the 30% (and potentially more) are gone in a blink. Indeed the commission paid to the broker covers the sourcing of the client, the meetings, the loan writing and post settlement customer service: now surely that makes the whole offering a lot more appealing figure wise.
And surely it's not only my gut feeling, as the resuscitated Bank Of Melbourne went from a business plan in March that did not include Mortgage Brokers within its distribution channels, to a recent confirmation that Mortgage Brokers will indeed be used to sell its products.
Maybe it is because their staff indicated that they were not keen on evening or weekend appointments, or perhaps they were concerned that their new credit team might have little to do if not enough people applied for their mortgages in this slow environment. Maybe costs have been included within the equation and loans written by mortgage brokers are not so unattractive for banks after all.
In every case it appears that we will very shortly welcome another lender to the market. And whilst I'm sceptical about the competitiveness of their offering, Super Finance will most certainly be reviewing all products to ensure that our clients benefit from any worthwhile offers newly introduced to the market.
Aus Credit Licence 394343
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South Yarra, VICTORIA, 3141
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