Before we jump into the questions it is useful to understand why you should go to a mortgage broker instead of directly to the bank.
If you’re planning to go to a bank/lender, you are dealing with one person who may not be a mortgage specialist and you will also only be offered whatever products that particular bank offers. If you go to an experienced broker, he or she will advise you on how you can acquire the desired property considering your financial capacity or situation. Experienced mortgage brokers specialize in this type of process. Good mortgage brokers have access to a wide range of lenders and know which lenders have the special deals or what interest rates lenders will negotiate down to and usually their services are free of charge. Mortgage brokers also specialize in different lending areas, like home loans for non-residents, home loans for 457 visa holders, investment property loans or other types of home loans. If your mortgage broker specializes in investment property loans they will also help you set up and structure your investment loan portfolio to reduce the cost and give you greater flexibility. The better mortgage broker will also give you ongoing service, this means that if a new home loan deal comes out that may be better for you they will let you know, banks and lenders never do this for their customers. Also, they will help you process your documents, help present your application in the best way to the lender and be on your side with any dealings with the lender.
Below are some important questions to ask a mortgage broker so that you are informed about the right information to help you get the best home loan for you.
Asking this question will help you assess if the mortgage broker follows all the protocol in accordance with the law and the associations that advocate credibility, professionalism, and transparency. A mortgage broker should be a member of one of these associations because they follow the highest standard set by MFAA and FBAA. This includes meeting the training levels required, membership of a dispute resolution scheme and other requirements. Only appropriately licensed and registered mortgage brokers can be accredited for these associations.
Finance Brokers Association of Australia (FBAA)
Ask the mortgage broker to give you an estimate of how much a bank or lender will lend to you, this is called your borrowing power. This will vary from lender to lender and is dependent on your income. Your mortgage broker will be able to give you a quick estimate with minimal details but for an exact amount, you will need to provide all of your details so that these can be referenced against each lender’s requirements and policies. Some lenders will not consider certain types of income (such as commissions or overtime) and they may only consider a percentage of some types of income (for example 80% of rental income). Knowing your borrowing power is important if not essential, before you start your search for a property.
Ask about how much deposit you will need. Saving for the deposit can be the hardest part of purchasing a house. The minimum amount of deposit you will need is dependent on the size of the mortgage you will have. A mortgage broker will be able to estimate how much deposit you need and if you need to pay for Lenders Mortgage Insurance. Lenders mortgage insurance can be a significant amount of money if you have only a small deposit and a large loan. Lenders mortgage insurance is insurance you pay to protect the bank or lender (not you) if you default on the loan and they make a loss from the sale of your repossessed house. A good mortgage broker will also be able to estimate your lenders mortgage insurance.
As a follow up on how much deposit you will need, ask your broker about if you will need to pay lenders mortgage insurance, and if so, how much it will cost. In many cases lenders mortgage insurance is not needed if you have a loan to value ratio of less than 80% and in limited cases lenders mortgage insurance is not needed for loans above 80%. Generally the smaller your deposit (where it is less than 80%) and the larger the loan the greater the cost of lenders mortgage insurance.
Asking this question to a mortgage broker will help you clarify the importance of having enough insurance. When you change your situation significantly, like when you take on a mortgage, you should re-assess your insurance situation.
There is not one best loan for everyone. The best loan for you may not be the best loan for someone else who has a different situation and/or objectives.
Your mortgage broker should ask you about your situation, that is the amount you want to borrow, how much deposit you have, your income, etc.… and what you want to achieve (your objectives), this may be:
— buy the home that you will live in for the rest of your life and know that your repayments will not rise in the next 3 years; or
— buy an apartment, live in it for a few years until you can afford a bigger place and then turn the apartment into a rental property.
The best loan will be different for those different objectives. Different loans have different interest rates, fees, and features, and these will be dependent on how much you borrow and other factors.
Once your mortgage broker knows your situation and objectives they will be able to recommend a few different loans for you to choose.
Ask your mortgage broker about how much your loan payments will be.
The main things that determine your loan repayments are: the loan amount, the interest rate, any fees or charges, the term of the loan and features that you are using like keeping money in an offset account. If you are borrowing greater than 80% of the property value and need to pay Lenders Mortgage Insurance, then it can be a significant cost also!
You should know the amount that you will need to pay and be happy that you can afford the payments and all of your other expenses without having difficulty.
Ask your mortgage broker if you should get a variable or fixed interest rate. This will depend on your situation and objectives. There are pros and cons for each, your mortgage broker will be able to talk to you about which meets your objectives.
This question will help you determine if there will be other options available for you so that you can easily change if your situation changes in the future.
Interest-only loans, in comparison to principal and interest, can have a benefit in some circumstances. Property investors in Australia often use interest only on their investment property loans to maximize their tax-deductible interest and minimize their non-tax deductible interest on their principal place of residence loan. Interest-only loans can also free up your cash flow and give you more flexibility. You should talk to a tax professional (accountant) for information about how your choices impact on your taxation. An interest only or principal and interest should be part of the discussion about your situation and objectives.
Asking this question will help you assess if the mortgage broker understands or supports your interest and welfare. A mortgage broker that understands your situation will help you find the best deal and advise you which home loan is best suited with your financial situation from their panel of banks and lenders. The mortgage broker should be able to tell you the process that they go through when assessing different loans against your situation and objectives.
Asking this question will help you assess what cost, if any, the mortgage broker will charge you. Usually, mortgage brokers don’t ask for any fees for the services of assisting you with a home loan. This is because they will get a commission for successful transactions they will make for a specified lender/bank. Under Australian law the mortgage broker must disclose their commissions to you. For very small home loans (where the commission from the lender will be very small) or commercial loans that require complex assessment, mortgage brokers sometimes require that you pay them a fee to organize the loan.
Asking this question will help you assess if the mortgage broker is affiliated to a wide network of lenders/banks from which the broker can help you look for a deal that meets your situation and objectives.
Access to a large panel of lenders means that you can choose from a wide selection of home loans.
Asking this question will help you assess if the mortgage broker understands the lender policies and how to get your home loans approved. Your mortgage broker will further discuss the details you need to know based on your current financial status.
This will help you determine the fees or charges you will need to pay to set up and service the home loan. Your broker will discuss or advise you on what fees different loans have and how they influence the total cost of the loan. For people refinancing from another bank, there will also be mortgage discharge fees, and if you are canceling a fixed interest rate before the end of the fixed term, you may need to pay break fees.
Asking this question will help you determine the true cost of a loan from a broker’s affiliated network of lenders/banks. It is usually made up of the following:
Comparison rates were brought in to help you compare different home loans with different interest and fee structures. But be careful about advertised comparison rates, they are only for the amount of loan specified. If you have a larger or smaller loan the comparison rate will be different. A better comparison between home loans is the total cost over the loan term. A competitive mortgage broker should be able to assist you in evaluating the total cost of different loans.
Asking this question will help you determine the features that your home loan will include. Your mortgage broker should discuss with you what features may be suitable for you when you are discussing your situation and objectives. Having certain features can mean that you are charged a fee or the interest rate is higher, so if you will not use them then you may be better going with a basic home loan. However, some features increase your flexibility or if used correctly can save you a lot of money on interest. Discussing with your mortgage broker how you use your money can help them suggest which feature you may be interested in.
Asking this question to a broker will help you determine the needed documents for your home loan/mortgage application. Usually, mortgage brokers will assist you along the way. You will just need to prepare the needed documents and they will do the processing of your loan/mortgage application.
Usually as a minimum, all lenders will require evidence of your income, repayments of any existing loans or credit cards that you have, the property that you are refinancing or the contract of sale for the property that you are buying, your savings or contribution to the purchase.
This question will help you determine the step-by-step procedure on your loan application. Your broker will provide the information you need to know and guide you through the whole process.
The home loan application generally follows this process:
If you are a first home buyer you could be eligible for a first home owner grant. Some mortgage brokers will help you complete the forms making it quicker and easier for you to get the grant.
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