What is a mortgage broker?
A mortgage broker is a middleman who deals with a panel of banks or lenders, arranging a home loan on behalf of a borrower.
Their job is to gather information about a borrower’s needs and recommend lenders and products to match them. They then assist their clients throughout the home loan application, approval, and settlement process.
Generally speaking, a good broker:
- Clearly understands what your needs and wants are
- Measures your borrowing power, which is what you can afford to borrow
- Matches you to loan products meeting your needs and wants.
- Helps break down how each loan product works, including its features and costs.
- Helps you apply for the loan on your behalf, from approval to settlement.
Can I use a broker to refinance?
Yes, mortgage brokers can refinance home loans. However, if you don’t need or want their help, you can also compare home loans yourself to find one that might suit your situation.
Once you or your broker finds a suitable home loan, you can then apply to the lender of your choice, or your broker can do so on your behalf.
Pros and cons of using a mortgage broker to refinance
There are several pros to using a mortgage broker to refinance a home loan:
- Convenience: A broker can facilitate the completion and submission of a home loan application on your behalf, instructing you on what documentation is needed at every step of the way through to settlement. This can be especially helpful if you’re time-poor or find the entire process overwhelming.
- Expertise: Most brokers are highly knowledgeable about the home loan market. Based on your needs, they can match you to home loans that best meet them. If your financial situation is complex, they can also help you navigate the process and answer any queries you may have, helping you make an informed decision.
- Access to multiple lenders: A mortgage broker typically works with a panel of lenders, each of which generally offers multiple products, helping you to find a suitable refinance deal.
- Negotiating power: Mortgage brokers usually have a close working relationship with their panel of lenders. Because of this, they could negotiate on your behalf, potentially getting you access to better rates, features and fees.
However, there are also cons to consider:
- No guarantee of savings: A broker may not offer the most competitive deal on the market, especially if the most competitive loans aren’t offered by lenders on their panel.
- You may still need to shop around: Generally, different brokers specialise in different niches. It’s important to do your research and select a reputable broker that can cater to your specific needs.
Even if you’re working with a broker, you can still compare home loans available on the broader market to see how they stack up.
Do mortgage brokers have to act in your best interest?
Yes, mortgage brokers must act in your best interests when suggesting a loan for you. Mortgage brokers must comply with the best interests obligations as set out in the National Consumer Credit Protection Act 2009 (National Credit Act).
This means mortgage brokers are required to present recommendations from their panel in line with the consumers’ best interests, even if it means sacrificing commission or perks to do so.
The best interests duty is in addition to another set of regulations designed to protect consumers, called responsible lending. These require lenders to ensure a loan is suitable for a consumer before providing it.
Do mortgage brokers need to be licensed?
Yes, a broker must have an Australian Credit Licence to give you loan advice. If a broker doesn’t have such a licence, it’s likely they are operating illegally.
How do mortgage brokers make money on refinances?
Typically, mortgage brokers make their money by receiving commissions from banks and other lenders. This is also the case when you use a broker to refinance or apply for a new home loan.
Mortgage brokers usually do not charge fees to borrowers, nor are they typically paid by their employers.
Commissions can be upfront, meaning the bank or lender pays them when you sign up for a home loan, or continue annually for the life of the loan—this is called a trail commission.
Should you use a mortgage broker to refinance your home loan?
Ultimately, whether it is better to deal with a broker or go directly to a bank or lender comes down to your personal preferences and how much support you feel you need.
Before refinancing, it’s often worth contacting your current lender to ask if they can offer you a better rate or more suitable features than you currently have. Let them know you’re planning on refinancing. If your lender wishes to keep you as a customer, they may cut you a better deal.
But to get a deal that suits you when refinancing, you might consider talking to a mortgage broker, contacting your existing lender, and comparing home loans independently.
Considering all options may improve your chances of finding a home loan that saves you money.
What should you ask a mortgage broker when refinancing?
If you are refinancing your home loan with help from a mortgage broker, there are several things you should consider asking, in particular:
Are they licensed?
You can ask your broker directly or check with a governing body such as the Finance Brokers Association of Australia Limited (FBAA) or the Mortgage and Finance Association of Australia (MFAA).
How many lenders do they deal with?
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 than one who only works with a handful.
What are their fees and commissions?
While mortgage brokers are bound by statutory duty to act in your best interests, you may still wish to understand how much your broker stands to earn in commissions, and whether this will be paid upfront or annually over the lifetime of the loan.
What will the borrowing costs be?
Several costs can come with refinancing. For example, if you are switching lenders before your fixed home loan term is up, you may be required to pay a break fee. You can ask your broker or existing lender about this and other costs that may emerge.
What type of interest rate is best for you?
If you are refinancing, you likely already have some idea about whether you wish to move to a fixed or variable interest rate, or a combination of the two through a split rate loan. Nonetheless, a mortgage broker may be able to offer insight on what arrangement is best suited for you.
What is the comparison rate of the new home loan?
While a home loan’s interest rate can give you a rough picture of what your repayments may look like, its comparison rate can be a truer measure of its real cost, factoring in most ongoing fees. It is important to consider this before refinancing.
What features are available?
If you are refinancing to access more features, such as offset accounts and redraw facilities, it’s important to tell your broker. That way, they can recommend loan products with those features.
What happens after you apply to refinance?
It is important to note that applying to refinance does not guarantee approval, even if your broker has recommended a particular lender to you. Your broker will be able to advise you on what happens after your refinance application is submitted.
