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How Mortgage Brokers Work

Brokers usually run their own businesses. Lenders work with mortgage brokers because they effectively give the lender a bigger "shop front" without carrying a traditional employee or "bricks and mortar" overhead. Some lenders like Citibank, ING, Macquarie Bank and HSBC have few or no branches and partly rely on mortgage brokers to represent their products. Other lenders like Colonial CBA, Westpac, ANZ, NAB and St George have their own branch networks, but simple extend their access to Customers through the mortgage broker network. The lender pays the broker fees or commissions for your business.

How can a mortgage broker service be free?

Brokers usually run their own businesses. Lenders work with mortgage brokers because they effectively give the lender a bigger "shop front" without carrying a traditional employee or "bricks and mortar" overhead. Some lenders like Citibank, ING, Macquarie Bank and HSBC have few or no branches and partly rely on mortgage brokers to represent their products. The lender pays the broker fees or commissions for your business. Just as if you were dealing with a bank manager or lender, these fees do not change the interest rate you pay on a home loan. To be sure you are being recommended to the right lender, just ask your broker to show you all the lenders on their panel, and what your loan options would be, against each lender's criteria.

What a Broker should do for you

When you first meet with a broker, they should always start by asking you to explain your entire finance situation, including future plans. Little things can make a big difference to making sure you get the right home loan for your situation now and with flexibility for future changes. Have your key documents on hand to refer to when meeting with the broker so you can give the most accurate details to ensure you get the right homeloan. Your broker should:

Discuss and confirm loan options in writing
Explain all documents of the loan application and help you to complete them
Explain the loan process, from application to closing
Explain all associated costs and fees of the loan application
Explain the disbursements
Communicate with you throughout the loan process in a timely manner
Follow up the lender for you from application through conditional and on to unconditional approval
Negotiate with their lender/s to achieve the best deal

How do I know a mortgage broker is any good?

Establishing that a broker is right for you and has experience and qualifications, as well as being committed to the industry code of practice, is vital to ensure you're getting the best loan for your needs. Here is a step-by-step checklist that will help you know if your broker is on the level.

For residential loans, all of the broker's services should be free i.e. is the whole service of giving you information in relation to home loans, negotiating the loan for you and handling the paperwork through to approval
The right broker will take the time to really understand your entire finance situation, both now and into the future
Your broker should have a range of home loans from a wide variety of lenders, e.g. banks and non-banks, conforming and non-conforming
Ensure your broker is not just an agent for one lender
Check the qualifications and experience of your broker, even ask for references from previous borrowers Are they a member of the professional mortgage association (MIAA/FBAA)?
Make sure your broker discloses all commission and payments received so you can judge whether a particular loan recommendation is being influenced by how much the broker will be paid
Ask your broker to show you on their computer how the loans they offer compare for your situation. Good brokers should have the appropriate software and be able to clearly outline their criteria and logic
Ask your broker how they comply with the Privacy Act to ensure the security of your personal and financial details
Your broker should have appropriate insurances
A good broker should be able to explain the most complex loans in plain English
It is up to you, but it really helps if you actually like your broker as well!

Specialised Software

The sheer amount of lenders in the market, coupled with the enormous numbers of products on offer, means that most good brokers use specialised software to access and keep up to date with the entire range of loans on offer from their lenders. Apart from complexity, with changes potentially occurring somewhere daily, it really does require the assistance of technology to analyse options effectively. When you meet with a mortgage broker, they should be happy to work through these options with you on their computer.

More Information

The home loan market is very competitive. There are literally thousands of home loan options to choose from and the fastest way to get to the best decision for you is to get assistance. Make an appointment or talk to a local mortgage broker before making a final decision.

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Nearly half of Australian home buyers now use a mortgage broker to find them the best home loan. And there are plenty of great deals around if you know where to look and who to ask.