Top 10 Questions to Ask Your Mortgage Broker
If you’re looking for an Australian home loan, whether you’re a first home buyer, upgrading, downsizing or looking to refinance your existing mortgage, a mortgage broker can help sort through the many options different lenders can offer. Mortgage broking is a service that can give you information upfront and help steer you in the right direction.
Before you speak to a mortgage broker for the first time, it’s important to make sure you are comfortable with them. It is your financial situation they are dealing with, after all. Make sure they have an ABN and an Australian Credit Licence. You can check with ASIC as well if you’re really unsure, or check with the Mortgage and Finance Association of Australia. When it comes to real estate, mortgages and refinancing, it’s better to be safe than sorry.
If you’ve done all this legwork and you’re still unsure, then it may be best to go to a credit representative of a regular bank or lender instead. You can still find the right home loan for you and your family, or be well on your way to getting the investment property you’re after. Here’s a few questions to put to a broker if you’re considering using them to find a suitable home loan:
1. Which type of loan is best?
You want to feel that your finance broker has asked you several questions and is genuinely trying to assess your individual needs before providing an answer to this question. The more questions they ask and the more they try to gauge your requirements, the higher the likelihood that they will match you to a loan that suits your needs. They may also ask you about your credit cards and their limits, and will try to assess your borrowing power, based on your income and expenses, as well as any assets you have. They may also ask you about mortgage insurance and whether you prefer a fixed or variable rate home loan. Where you live can also impact what a broker thinks are the best mortgage options for you. With different markets in Sydney, Qld, Melbourne and across the nation, the state of the local market may be a point of difference.
2. Who is on your panel of lenders?
The financial services is a complex industry, so it can pay to have a large and varied range of lenders on a mortgage broker’s panel. A combination of bank and non-bank lenders including building societies is always important. Having a choice of financial products is important, and can help give you confidence the broker is solely focused on you and your needs. If they have more than about 20 lenders on their panel you can feel comfortable that you will have options.
Importantly though, there is no need to go with the Mortgage Broker that has the biggest lending panel as the individual broker may only be familiar with some of the products from some of the lenders on their panel. A good mortgage broker will not just understand the needs of the would-be home owner, but will also have spent time understanding the key features, loan terms and benefits of a lot of different home loan options on the market. The mortgage industry is a fast-changing one, so it is important to choose a mortgage broker that is across the latest trends and products.
3. What information do I need to have ready for my home loan application?
The mortgage broker should have a printed checklist of the items you need to gather when applying for a loan, one that is written in plain English. If you want to know as much as you can before you meet your mortgage broker, and before the application process begins, we have a checklist that can help. That checklist is an easy-to-understand table, and it’s always good to start planning early, as chasing down some of the things you require can be a hassle and may take a fair bit of time. The first thing you will need is your proof of identity. That can take the form of a licence or a passport, but can also include things such as a Proof-of-Age card or an ID card from your university.
If you only have one of these, you may also need your birth certificate, Medicare or Centrelink card, a tax notice or even a gas or power bill. That gives the banks or lenders the confidence that you are who you say you are. From there it’s all about income, expenses and assets. Your income can be proven with more than one pay slip – usually the newer the better – and a letter from your employer letting the bank or lender know how long you have worked there. Tax returns can work if you’re self-employed, and proof of any other income, such as share dividends or Centrelink payments are also required. Try to go into as much detail, with as much evidence, of your expenses as you can, including things such as utility and school bills, council rates and child support payments. Assets can include at least 3 months of bank statements to show a savings history, as well as any shares, superannuation or gifts, which must be accompanied with a statutory declaration.
4. What is the Interest Rate?
While you want to hear a low interest rate, a good mortgage broker will take the time to explain what the Comparison Rate is, which provides a more accurate platform to measure more than one loan product against another. Sometimes the lowest interest rate can end up costing you more in the long run when you take into consideration all the extra fees. There are two types of interest rates – variable and fixed. With a variable interest rate home loan, your interest rate can rise or fall over the life of the loan. With a fixed rate loan, your interest rate will stay the same for an agreed time, usually between 1 and 5 years. Ask your mortgage broker about which one he thinks may be more suitable, based on your financial situation. A Comparison Rate is something banks and lenders are required to advertise alongside the regular interest rates. A Comparison Rate is a way of comparing home loans, by taking into account the fees and charges you may incur over the life of the loan, as well as the interest rates themselves.
5. What are the fees on the loan?
See a full list of fees explained to you in plain English. Don’t let the mortgage broker use a lot of jargon to try and cover up unnecessary charges. Feel free to ask them to explain any fees you don’t understand. You can also enquire if they have a ‘No Fee’ or ‘Low Fee’ home loan. Fees and charges should also be explicit in the details of the home loan, from the bank or lender. It can pay to double check online if those details are available. There can be a number of fees associated with a mortgage including ongoing monthly fees, once off package fees, rate lock fees application fees, as well as valuation and settlement fees. Your mortgage broker should know what each of them means, and how much they are.
6. Can I lock in my mortgage interest rate between now and settlement?
Yes. This means that the lender will lock in your interest rate for a period of up to 2 months from the date your home loan is approved. Even if mortgage interest rates go up before your loan has settled, your rate won’t change. Most lenders who offer a ‘Rate Lock’ will allow you to reduce your interest rate in line with any decreases in interest rates. This way you get the best of both worlds. Check that your lender will provide this for free, as some banks or lenders offer home loans with a Rate Lock fee.
7. Is there is a fee to make additional repayments?
No. Ideally, you would like to be able to make additional repayments on your home loan, to be able to pay it off sooner and save in interest. This feature has not been available for fixed loans in the past; however there is now a range of fixed rate loans that allow you to make additional repayments. Making extra repayments means you may be able to pay off your home loan sooner.
If you do this, you can potentially save thousands of dollars on interest. Another question worth asking in this area is does a home loan have a Redraw feature? Redraw works well alongside additional repayments, as you can withdraw any additional repayments or lump sum payments you have made, at any time. You don’t need to spend the money on your home, and as long as you are up to date with your regular repayments there are no restrictions to how much you can withdraw. This can be an important feature because it can help you make additional repayments with extra confidence, in the knowledge that money can still be available if you need it. One thing to remember with additional repayments and no extra fees is that there may be a cap per calendar year on how much extra you can repay on your mortgage. These little bits of information can make a big difference.
8. How long will it take for my loan to be approved?
There are 3 levels of approval.
- A Pre-Approval can be obtained instantly but is not binding and should never to be used to make an offer on a property.
- Conditional Approval is where you complete an application form and submit all the supporting documentation to show that you can repay the loan. An assessment is made that you can repay the loan and approval is now only conditional on the property you wish to purchase. Conditional Approval normally takes 2-3 days.
- Full Approval is where both you and the property you are purchasing have been approved by the lender. You are now able to formally make an offer on the property or attend an auction. Full Approval normally takes 5-7 days on top of the conditional approval.
Note: Full approval normally requires a valuation to be conducted on the property and if it currently has tenants a notice period must be given to the tenants which can increase the approval time.
9. How long will it take for the loan to settle?
The average time for a refinanced loan to settle is about 4 weeks from when full approval is given. For property purchases, the average settlement time is approximately 6 weeks from when contracts are exchanged or the 10% deposit has been paid. You may be able to negotiate a different timeframe with the seller, but that is something your legal representative will have to do on your behalf, or you can do through the real estate agent.
10. Where is the point of no return in accepting a loan?
Once you have spoken with your broker, confirmed your loan product and submitted your application for approval, you will pay your application fee. If you choose to opt out of your loan application after this stage, your fees may not be refunded. The valuation and legal documentation stages also incur non-refundable fees.