All You Need To Know About Mortgage Brokers
What Is A Mortgage Broker’s Role?
A Mortgage Broker is now correctly called a Financial Adviser and anyone assisting with mortgages and helping you with advice needs to be registered on the Financial Service Providers Register.
The role of a Mortgage Broker has always been to help clients arrange finance to purchase a property and this can include their own home, rental investments, a lifestyle property or commercial buildings. These can be either existing buildings or new builds. So, the broker will discuss which lenders may suit a client, looking at interest rates, repayment structures, and options to reduce the mortgage quicker.
With a family home steadily increasing in value over time, this also creates opportunities to use the equity for the likes of renovations, helping families, consolidating debts, a holiday or purchasing a new vehicle.
A Mortgage Broker will give advice on which lenders they would like to approach, gather information to support the application such as identification, income details, deposit amount, bank statements and a breakdown of how you spend your monthly income, and a schedule of what you own and what you owe.
After the interview, they will assess which lender to approach and then assist with completing the application documentation which will include an assessment of the affordability of the proposed loan repayments based on the amount you wish to borrow.
Then if your proposal appears to fit the Bank’s criteria, it will be submitted online for assessment and ideally pre-approved.
Once a pre-approval offer is provided, there may be conditions to be met such as a valuation, Code of Compliance if you are buying a brand new home, or maybe some more bank or credit card statements. Your broker will assist you to meet these and once the Bank is satisfied, they will issue you an unconditional loan offer.
You will also be provided with a summary of advice which covers your requirements, background notes, reasons for recommending a lender, your goals and review dates planned.
How Do Mortgage Brokers Get Paid?
Mortgage Brokers are usually paid on a results basis when a loan is settled on the purchase of a property, a top up or a refinance.
The most common is a commission paid by a Bank. This can vary between 0.55% and up to 0.85% of the loan amount. Each Bank sets its own level of commission that it will pay to Brokers and in some instances, this can include a “trail” commission of 0.15% to 0.20%pa of the loan amount paid monthly. This “trail” recognises that the Broker will continue to assist the client with the likes of fixed rate reviews, top ups, mortgage advice and retain a relationship with the client.
There are also lenders in the Non Bank Space who have a similar model to reward a broker for business introduced being commission and trail.
Any lender that pays an upfront commission will have a clawback period of up to 27 months. So, if you repay your loan early, the Broker will be invoiced by the lender for all or part of the commission that they have been paid. Often this is 100% for the first 12 months so the broker has assisted you for free. Hence, they may invoice you a fee relating to the hours that they have spent. This should be disclosed in an engagement document, if not, it always pays to ask at the outset.
There are also some lenders that do not pay any commission. In this case there is an agreed broker fee typically 1- 2% of the loan amount. Again, this should be disclosed in the engagement document and the same rule applies if in doubt always ask.
Of interest is that some Real Estate Agents disclose that they can receive commission from a Mortgage Broker or Insurance Agent for referrals. We do not do this as we believe referrals should be on merit, not on who gives you a financial incentive.
Why Use A Mortgage Broker?
It is often all about the hassle, people are so busy, and sometimes it’s hard to get an appointment with your Bank or the local branch you have always gone to has closed.
The application process can also involve a lot of forms and it was only recently that the number of coffees and takeaways you had a week had to be included in your expenses. Fortunately, regular voluntary savings are no longer considered a fixed expense.
A mortgage broker will help you complete the forms and either gather as many documents as possible when you meet or provide an email link with a checklist of items that are required. That will allow them to assess an application to see which lenders it is best suited to. They will do the leg work for you and identify any possible speed bumps that could slow down or stop your application.
In the instance that your Bank is unable to help you, some mortgage brokers will have Non Bank lenders that may assist. There are many brokers who are only able to deal with 10 Non Bank lenders, but we are working with 60. A Non Bank lender can often help for a 12 -24 month term then you can refinance to a Bank.
There are a few Mortgage Brokers who specialise in Non Bank options and do the job well. Others struggle with even a credit mishap.
Things To Do Before Meeting With A Mortgage Broker
The best advice is to always be prepared.
It helps if you have identification, income details, savings and evidence of any existing debts such as HP, Credit Cards and Car loans handy. You may also be considering using your Kiwi Saver funds, as this is a long term investment product you should seek advice on this. If you already own a home, 6 months mortgage history and your most recent rates notice will assist. Also do some research to see what properties you like, what price range you can afford and location you want to be buying your house.
Mortgage Brokers love loyal clients. If you have used them before and they did a great job, give them a call first. If you are looking for a new Mortgage Broker many uses Google, which allows them to find a local broker and read about them and their team.
If you are working with a number of brokers at the same time, you should tell them as multiple credit checks can damage your credit score plus Banks will think you are “shopping” as you may have been declined and are desperate. Many Mortgage Brokers will only work with you if you give them the first chance to get a good offer. Multiple Brokers can be messy and is like having 2 or 3 dentists working on your teeth at the same time.
How To Find A Mortgage Broker
Word of mouth is by far the best way to find a good broker.
Our business has an approximate split of 50% from existing clients and their referrals and 50% from advertising. Common referral sources are clients, solicitors, accountants, lenders and real estate agents. Talk with these people that you know well and see who they trust.
Other clients approach us from searching on the internet and reading reviews such as No Cowboys, Google, Top reviews.
You can always ring a few and get that gut feel that this person knows what they are doing. Often it is a relationship thing, you get on well with them or they are helpful and friendly. When you ask questions, they answer them with confidence.
Questions To Ask Your Mortgage Broker
This can be a bit like speed dating. Lots of questions and you see if you like the answers. Below are some questions you can ask your mortgage broker:
- Are you a Registered Financial Adviser and allowed to offer financial services in New Zealand?
- How long have you been working as a Mortgage Broker/Financial Adviser?
- What were you doing prior to this, finance or a totally different industry?
- Have you completed your full level 5 qualification in Financial Services?
- Which Banks do you use the most and why?
- Can you help clients who are self-employed, have had previous credit issues, are commission only or on a contract? (If applicable)
- How quickly can you get my application to a lender?
- How do you get paid, are there any fees that you charge me?
- If you are away or sick, who covers your job if I am needing help?
- How often will you contact me in the future to review my Home Loan?