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Guest post by Peter Cooper from Cooper Financial Connections.
The logistics around buying or refinancing property can be overwhelming, even for seasoned investors. If you have been thinking about taking the plunge to build your property portfolio, or looking to get a better deal, engaging a Mortgage Broker can bring a wealth of knowledge and experience to ensure you are in the best position financially.
Below are a few areas of knowledge that the professional Mortgage Broker brings to the table when advising clients. From recent statements in the media, it would appear this level of expertise is something the banking commission appears to not understand as the commission was focused on how Brokers are paid instead of the benefits Brokers achieve for the public in general.
What a professional Mortgage Broker does for their clients:
- Brokers spend time understanding client circumstances. The initial bank of choice may not be the bank of choice required in coming years based on your circumstances going forward. They can explain why, and which one is a more suitable option for YOU.
- Brokers ask the questions banks do not want to answer around product flexibility in your individual circumstance.
- Brokers explain the difference in policy between the banks and how it will impact your needs.
- Brokers explain to clients why a bank is running specials not unlike supermarkets.
- The use of various incomes in deliberations of capacity to repay (commission, dividends, bonuses, part time, casual, contract) differs between banks. Brokers can explain the difference and why.
- They explain the cost difference between banks on mortgage insurance
- A Broker will explain the difference between banks as to when they deem a loan becomes unconditionally approved (particularly for pre approvals at auction).
- Brokers explain the difference between banks on
- fixed rate lending
- breaking a fixed rate loan
- Switching costs
- settlement fees and legal fees
- cost to rate lock a fixed rate loan
- how much you can pay in additional payments when you have a fixed rate
- Brokers explain the difference between banks on their comfort with the industry in which you work (do they want to lend to your industry?).
- Brokers explain why you need to revisit your mortgage costs every two years minimum.
- Brokers explain the differences between banks:
- as to the different requirements around financial guarantees if you are self-employed.
- if you are a professional and whether you qualify for private bank status and discounts (all private banks have different policies for different professions to qualify).
- stress test rates, which could mean the difference between being approved or declined depending on which bank you deal with.
The above are just some of the points discussed when engaging a professional Mortgage Broker. In some cases, Brokers discuss with clients the need to seek out professional advice around:
- Who should be on title (joint tenants/tenants in common) and why;
- How to protect money parents have invested into the property to assist a first home buyer;
- The need for wills, enduring powers of attorney, advanced health directives, income protection insurance.
Banks do change credit managers and policy on a regular basis. It is unlikely that one Bank can look after you throughout your working life as your circumstances will change. These changed circumstances may not align with their bank’s current policies due their view in a particular market.
In most cases, you could be getting a better deal from your banks.
Mortgage Brokers – Benefits After Settlement
Let’s examine the ‘facts’ surrounding what the relationship is between a broker and client AFTER settlement. The reality is that the majority, not all I accept, but the vast majority of clients expect their broker to be a source of information relating to the current and future loans well past the time when the first loan settles.
Mortgage Brokers are basically on call and typically outside of business hours, whenever the client perceives that they need to speak with a trusted person in relation to the bank.
To give you an appreciation of what Brokers do in terms of after settlement, here are common questions/concerns that will/ could apply at any stage in life.
What Brokers do After Settlement:
- Client facing the opportunity of changing jobs. Can I afford to take a casual job? Does it have to be full-time? What if I want to be self-employed? Do I need to change banks if the current one will not entertain my changed circumstance?
- Client thinks – maybe I should fix the rate. What is best? Had the loan for 3 years? Fixed versus Variable? All the loan? Part of the loan? Can you investigate and process for me?
- Client is 5 years into loan…. Can I purchase another property /invest? Can you arrange substitution of security?
- Client had loan approved 6 years ago with dual incomes Now, thinking about having children. What are the implications if I do not work / change employment to casual/part time etc. / childcare?
- Children now about to go to a private school. Can we rearrange repayment structure?
- After 10 years, I need to make some renovations/home improvements. Do I need to notify the bank? Do I need a new loan / an increased loan? What do I have to do to combine loans or have the renovations approved before I go ahead?
- Client wants a new car. How do I deal with car loan/ credit cards?
- Client hears that a ‘line of credit’ may be more suitable. How do they work? Can you arrange?
- Brokers often organise new valuations to check on equity position at no cost to client.
- Clients come to us following media reports to look for better rates. We are expected to negotiate rates and fees with the existing bank initially so as not to have to change banks if possible.
- Client moving interstate/overseas. Can we rent or do we have to sell? Do we have to notify the bank? Will our rates go up? Is there a way around that?
- Clients contact us regarding administration work ongoing e.g. change direct debits, provide forms for various changes.
All the above and more are services that are provided by brokers during the ‘trail commission’ phase of a loan. I venture to say that the quantum of the trail commissions received would reflect an extremely low hourly rate compared to what other professionals such as accountants charge for servicing their clients on an ongoing basis.
If any of these apply to you, it may be beneficial to either chat with your current Mortgage Broker or engage a Mortgage Broker to ensure you are in the best position financially for your property.