Mortgage Broking

There should be no cost to the borrower to use a mortgage broker’s services as they are paid by the bank.  We often state that a broker’s time is not free; it is just that the clients do not have to pay for it.  A good broker should always disclose the commission that they are going to be paid.

A broker can be paid an upfront commission which is a one off payment for the research and sourcing of the loan.  The upfront is a pre-determined percentage of the loan amount and each bank will pay slightly differently.  The broker is also paid a trail commission.  This is an ongoing percentage of the remaining balance of the loan (less any amount in an offset account).

A broker will have access to a number of different banks.  They will be able to do all the research and leg work to obtain the best deal for the client and one that adequately services the client’s needs.  The broker will deal with the bank on behalf of the client saving them both time and money.

Borrowing capacity is determined by a number of different aspects.  The bank will take into consideration the amount of income that is coming into the borrower’s household and then weigh that up against the financial commitments that the client has.  Borrowing capacity will be affected by such things as number of dependants, the amount of existing debt or access to existing credit limits.

It can almost be impossible to pick the best interest rate as they can be a continually moving object.  How the banks position themselves and their interest rate decisions is dependant on the state of the market.

This will depend on individual circumstances.  If a client wants certainty in repayment then a fixed rate is a good option as they will be able to lock their repayments at a certain rate for a certain time frame.  This can give comfort in knowing what the commitment will be and can be good in a rising interest rate market.  Fixed rates are generally an inflexible product and will have restrictions on things like extra repayments on a loan , ability to redraw or have an offset account against the fixed rate loan.

Variable rates will move with the fluctuations of the interest rate market, but you tend to have greater flexibility with these products, with the ability to have an offset account, make unlimited extra repayments and then redraw those extra repayments.

The broker needs to disclose the amount that they are being paid for arranging a loan for the client.  They should also be forth coming with a list of all the selected banks commission rates.

If the broker is an investor themselves, they can have a better understanding of the structure that may suit the client and their future plans or goals in an investing sense. They will also know which banks have the best policy for certain situations and have an understanding of the different borrowing capacities with different lenders and how to use this to best advantage the client’s financial position.

A good broker should be able to detail all the fees that relate to the loan contract. These will range from the set up fees from the bank and the government, to ongoing fees and discharge fees that is incurred when leaving the loan.

Not necessarily. The product should first be considered on the appropriateness of the client’s situation now as well as in the future. Flexibility of the product to change with the changing circumstances in a client’s life need to be taken into consideration, alongside with the upfront, ongoing and discharge fees. This will provide a well-rounded product which will serve the client’s best needs.

This all comes down to cashflows and having an understanding of the events that will have an effect on cashflow into the future.