How does mortgage broking work?
If you're looking to invest in the property market, either as a way to make money or simply for a new family home, you'll want to maximise your budget. Entrance into the property market is expensive, with legal fees, deposits and other costs all adding up.
However, if you can find a home loan that suits you – your budget, your lifestyle, your future – the whole process can be a lot more affordable. That's what a mortgage broker is essentially for.
Saying that, you're likely looking for a more in-depth rundown, to educate yourself as much as possible before making one of the biggest financial decisions in your life. So, let's go through exactly how mortgage broking works.
Generally speaking, there is no fee payable directly to the mortgage broker by you.
What does a mortgage broker do?
Generally speaking, there is no fee payable directly to the mortgage broker by you; the bank's pay commissions direct to the broker. However, despite that, your mortgage broker works for you and not the bank. They are generally accredited with over a dozen lenders including all four major banks. This means they understand the full range of products and charges from that lender.
In addition, they know the differences in various lenders rules. For instance, some banks prefer owner-occupied to investment loans, don't like lending on larger blocks, may not do SMSF loans or may not like a particular small town or island property with leasehold land.
If you go to one bank and your loan doesn't fit their criteria it may just be that you're talking to the wrong bank! Your mortgage broker will likely know what went wrong, and can seek alternatives in your stead.
Our video below explaining Mortgage Broking can also help to clear up our role a little:
What's the process?
At the initial interview, your mortgage broker will ask questions about your current financial situation, including:
- Sources of income and expenses
- Assets and debts
- Details of work
- Housing history
- How many kids you have and their ages
- Details of your existing loans and credit cards, as well as equity or deposit history.
They will also discuss the property being purchased and the different loan features available to work out what type of loan package and lender best suits your requirements. At this time, they will assess if lenders mortgage insurance will apply and what it will cost.
They will then do some preliminary work on which lenders are suitable and make a short list of two or three lenders. From here, they should discuss your personal insurances, including life and income protection. If you want to review these, your broker should refer you to a qualified financial planner. This service may be available 'in house', which can save time explaining your financial position again. Check out our video below on life and income protection for a little more information:
At the second interview, your mortgage broker will present the short-listed lenders and discuss their loan features, interest rates, fees and charges. Once you've agreed on the best lender they will prepare and submit a formal loan application with the selected lender and liaise with the lender about any further questions required for approval.
Your mortgage documents will require witnessing by a JP – some mortgage brokers have JPs in house.
Once approved, the signing of your loan documentation by email, mail or by getting you to call into their local branch is next. This is the time to set up any other banking requirements if you decide to swap all your everyday banking to the lender. A good mortgage broker will be available to help out with this part as well, and ensure you understand the paperwork and various banking products. Generally, your mortgage documents will require witnessing by a JP – some mortgage brokers have JPs in house.
Then it's over to your solicitor or conveyancer to liaise with the bank for the settlement. You'll need to ensure the property is insured and has a cover note on it with the bank's name noted well before settlement – ideally when you sign the contract. You will also need to arrange for the solicitor and bank to have access to any deposit you're putting down, in addition to the deposit paid to the real estate agent.
Once it's all settled, you move in to enjoy your new home or start receiving rent! Again a good mortgage broker will go one step further and ensure you're using the various options like redraw facilities and offset accounts to get ahead of your minimum loan payments. The best mortgage brokers will keep in touch each year to see how you're going, making sure you're on track to repay the loan and build more equity for your financial security.