Top 10 questions to ask a mortgage broker

A mortgage broker can assist you in finding a home loan that’s suitable for your needs, but if you’ve never worked with one before there are a number of important questions to ask before and during the process.

A mortgage broker is an intermediary who connects prospective home buyers with banks and other lenders, so they can apply for a home loan. Generally speaking, a mortgage broker will have arrangements in place with a ‘panel’ of lenders, and will consider your individual needs and circumstances in order to recommend the loan or loans from those providers they believe may be most suitable for you.

A mortgage broker will ask you questions about your needs and financial position, in order to get a sense of how they can best support you., Similarly, for your own peace of mind there are key questions you can ask a broker to make sure they are a good fit for you.

How should you prepare for a mortgage broker meeting?

When preparing for a meeting with a mortgage broker, it is important to have a clear picture of your financial position, as well as the kind of property you wish to purchase. Are you looking for a first home or an investment property, or even looking to refinance an existing home loan? It may be advisable to write down a list of your assets and liabilities – as well as those of your partner, if you are buying with one – and make note of how much money you have saved up for a deposit, as well as how much you would like to spend or would be prepared to spend on a property.

It is also important to consider how your repayments on your home loan will work. Would you like to be able to pay off your loan as quickly as possible by adding a bit on top of each repayment, for example, or would you prefer to keep regular mortgage repayments as low as possible and chip away at it over the full term of the loan? What area are you looking to buy in, and are you looking for a house or an apartment? The more clarity you have on these questions, the better a mortgage broker might be able to help meet your specific needs by recommending an appropriate bank or lender to you.

What questions should you ask a mortgage broker?

Questions you may like to ask a mortgage broker include:

1. Are they licensed?
2. How many lenders do they deal with?
3. What are their fees and commissions?
4. What will the borrowing costs be?
5. What type of interest rate is best for you?
6. What is the comparison rate of the home loan?
7. Is the loan the best one they can recommend?
8. What features are available?
9. What information will you need for your home loan application?
10. What happens after you apply for a home loan?

1. Are they licensed?

Licensed mortgage brokers are bound by certain rules and regulations. For example, they have a statutory duty to act in the best interests of their clients when recommending loan products. This is one important reason why Moneysmart advises that you should check if your broker is licensed to give you credit advice. You can ask them directly for details about their credit licence, or contact a professional body such as the Finance Brokers Association of Australia Limited (FBAA) or the Mortgage & Finance Association of Australia (MFAA), who may be able to assist you in finding out if your broker is licensed, or connecting you with one who is.

2. How many lenders do they deal with?

Mortgage brokers will typically work with a panel of lenders, all of whom have different home loan products available, in order to find the one that’s most suitable for you. While there is no hard and fast rule about how large a panel should be, a broker who works with several dozen lenders will naturally have more options to choose from than one who only works with two or three. Sometimes, a particular lender might have a deal available through a mortgage broker that is not available to the general public, in which case, it can be beneficial to apply with them through that broker. Keep in mind, though, that brokers will not have a relationship with every lender on the market, so it is still advisable to do your own research when seeking out a home loan, in case you are able to find a deal that you consider to be more favourable.

3. What are their fees and commissions?

Mortgage brokers typically do not charge upfront fees to consumers, nor are they paid by their employers. In fact, they typically receive their income by way of commissions and bonuses from lenders, as well as receiving other perks. Lenders are bound by a statutory duty to act in the best interests of their clients when recommending a home loan product. Nonetheless, it is important to ask your broker how they receive their commissions and if certain lenders pay them more than others. It is also important to ask how their commission will be structured. For example,  will it be an upfront payment, or a recurring one, or both?

4. What will the borrowing costs be?

While you may not be required to pay a fee to your broker, it is important to keep in mind that there are various fees that you will likely have to pay when it comes time to apply for a home loan. These can include an application fee and a property valuation fee. Depending on the size of your deposit, your lender may also require you to pay lenders mortgage insurance (LMI), which serves as an insurance policy to protect lenders from default. These fees will likely apply in addition to the interest charges already associated with the loan, and it is important to ask your mortgage broker about them to make sure you are prepared to meet the costs of applying for a home loan.

5. What type of interest rate is best for you?

There are various different types of home loans available on the market, with different repayment structures. A fixed rate home loan locks you into an interest rate for a set period of time, while a variable rate means that your interest rate can fluctuate depending on the lender’s decisions and the movement of official interest rates. There are also split rate loans available, which combine the two. Depending on your needs and financial circumstances, as well as conditions in the property market, a mortgage broker might be able to advise you as to which kind of loan may suit your particular situation.

6. What is the comparison rate of the home loan?

While the interest rate of a home loan can give you a picture of what your repayments will be like, the comparison rate of the loan is a true measure of how much it will cost. The comparison rate takes into account the interest rate of a home loan, as well as fees and charges that apply, to give you an idea of how much it will cost. Lenders are legally required to display the comparison rate of a loan next to the interest rate, and it is important to be aware of the comparison rate, as a loan with a lower interest rate may end up being more expensive when fees and charges are factored in.

7. Is the loan the best one they can recommend?

Moneysmart advises that when a mortgage broker recommends a home loan or home loans to you, it is worthwhile to ask if they are recommending the best loans for you. Brokers are required by law to act in your best interests, so once they have recommended a product or products, you may want to ask why these are in your best interests. To make sure you are getting the best deal, you could also ask your broker to show you a few more loan options, including one with the lowest overall costs, so you can compare.

8. What features are available?

Some home loans are relatively basic, and come with few features and frills, whereas some come with extras like offset accounts and redraw facilities and even bundled transaction accounts and credit cards. Once your broker has recommended a loan or loans, you may want to ask about the features, as while these can come at an extra cost, they can potentially be advantageous in the long term. For example, an offset account, a feature typically available on a variable rate loan, can allow you to use your home loan like an everyday transaction account, and can actually help lower your interest repayments over time, depending on what you have deposited.

9. What information will you need for your home loan application?

When it comes time to apply for a home loan, lenders will typically want to see an array of documentation, to get an idea of you and your financial circumstances, as well as your capacity to repay a home loan. A mortgage broker may be able to give you some preliminary advice about the kinds of documentation banks and lenders want to see with a home loan application, so you can begin preparing necessary paperwork such as copies of bank statements and tax returns, and potentially things like itemised lists of your everyday expenses, assets and liabilities.

10. What happens after you apply for a home loan?

It is important to keep in mind that applying for a home loan does not guarantee that you will be approved, even if your broker has recommended a particular lender to you. There are actually several levels of approval when applying for a home loan. Pre-approval is a non-binding agreement to lend you a certain amount of money should you make an offer on a home. Conditional approval is when the lender is satisfied that you can repay a loan and approval is only contingent on the property you wish to purchase. Full approval, which requires a valuation by the bank or lender, is formal approval for you to purchase a property. The home loan settlement period can vary across states and territories and as negotiated between buyers and sellers. It generally takes four to six weeks from when you sign a contract of sale to settlement day.