Finding a loan that is right for you can take a lot of time, effort and stress. But it doesn’t need to be that way! By using a finance broker, you won’t need to waste time searching around for a loan. A broker can help you navigate all the complexity that surrounds the many choices available, to find the option that is best suited to your situation and requirements, and you’ll also have the benefit of a single contact for the total term of your loan.
Finance Brokers can also be of significant help for those with complicated situations or poor credit scores, who are typically rejected by traditional lenders.
Here are some hints for getting the most out of a financial broker:
- Only deal with licenced finance brokers and look for one with experience beyond the minimum qualifications required to practice.
- If you are not sure whether you are dealing with a finance broker, ask or get advice! Some people think they are dealing with the lender when in fact they are speaking to a broker.
- Shop around. Ring other finance brokers and check what they charge and what they are offering to do.
- Ask how much the service will cost you.
- Do not sign anything without reading it carefully first. If you don’t understand anything, get independent advice. Many potential borrowers have signed a document presented by a broker (sometimes thinking it is a loan application), only to discover later that they have signed a binding contract including a substantial fee that is payable whether they accept the loan arranged by the broker or not.
What are the most common problems to avoid?
The most common problem when dealing with a finance broker is that they might arrange an unsuitable or unjust loan. Credit law includes responsible lending conduct provisions that apply to finance brokers (and lenders). This means that a finance broker must:
- make reasonable enquiries about your financial situation;
- make reasonable enquiries about your requirements and objectives in seeking a loan;
- take reasonable steps to verify your financial situation.A loan will be unsuitable if:
- you cannot meet the financial obligations under the contract, or not without substantial hardship; and/or
- the loan does not meet your objectives and requirements.
Questions to ask your mortgage broker
How will you be paid? Do you earn more if I borrow more or choose a particular lender?
Most brokers receive a percentage-based commission for their work. They're paid by the bank, not you. This introduces two risks – that you'll be encouraged to borrow more, and that you'll be encouraged to go with a particular lender.
Is your business owned by or associated with a lender, like a big bank?
Research shows that broker companies owned by big banks send more loans back to their parent company. Steer clear of these broking companies unless you want a loan with the big four.
What's your experience with the lending market and what training have you done to understand home lending?
Look for brokers who've been members of the Mortgage & Finance Association of Australia (MFAA) for more than one year – members need to meet a high education standard to belong, and will have a bit of experience after 12 months.
How many lenders did you send loans to in the last year?
What are the top 10 banks you send loans to? What percentage of the loans you secure do you send to each of these? Some brokers send most loans to just four lenders. Look for a broker who has used a lot of different lenders. These brokers will be more likely to genuinely scan the market and find a loan that fits your circumstances.
Remember
Before signing the dotted line ask yourself one last time, has this broker worked with you to:
- Understand your needs and goals.
- Work out what you can afford to borrow.
- Find options to suit your situation.
- Explain how each loan works and what it costs (for example, interest rate, features and fees).