How to Choose a Mortgage Broker

One of the easiest and best ways to choose a mortgage broker is to follow recommendations of friends who have used their services before. In fact, most brokers rely on word-of-mouth referrals to build a business in the first place so this is clearly a good strategy both for you and the broker.

But what if you do not have any recommendations and you have never work with a mortgage broker before? You are going to have to learn about the characteristics of a good mortgage broker and then take some time to investigate a few, either on the net, or by scouring the yellow pages.

Mortgage broking is currently undergoing dramatic change as a result of government legislation which became effective on 1 July 2010. By the middle of 2011 all mortgage brokers in Australia will have to be licensed by the government to act as a mortgage broker and they will have to satisfy stringent set of conditions and practices in order to obtain and keep the licence for the long-term.

This legislation makes it easier to choose a broker in the sense that you can be assured that their background, experience and knowledge will be sufficient to meet almost every borrowers needs.

What are the characteristics of a good mortgage broker?

A good mortgage broker will:

Be accredited with every major lender in Australia.

Be actively writing home loans on a regular basis.

Have a few years experience in the market so you can learn about the ups and downs of the property market from them.

Act in the interests of their clients at all times, and not simply be the agent of a bank or lender.

Be willing to act as an advocate on behalf of their clients.

Act as a go-between when it comes to finalising a home loan application by liaising with lenders, real estate agents, accountants and conveyancing firms to bring about the smooth settlement of your property.

Demonstrate an independent record when it comes to dealing with banks to prove they are immune to incentives offered by various lenders from time to time.

Never recommend a product that is unsuitable for a borrower.

Advise clients as to the paperwork which will be required to satisfy lenders assessment policies.

Although this is not an exhaustive list, a mortgage broker who can satisfy you in each of these elements will be definitely able to assist you get the best deal and help you through the process of assessment as painlessly as possible.

That is not to say that you may not experience difficulties with a lender during the process of assessment. Lenders have a habit of seeking different or unusual information because of sudden changes in lending policy. But, even if the mortgage broker has not anticipated these issues, a good broker will still be in a position to help you negotiate your way through the maze of lending requirements and get the approval you are seeking.

One of the points above raises the issue of incentives offered by lenders to brokers. This should be an area of careful consideration for all borrowers when choosing a broker because if a broker is likely to receive more remuneration from one particular lender you may feel that you could be directed to a loan product that benefits the broker more than the borrower.

This may certainly be the case because some lenders, particularly some major retail banks like Westpac and The Commonwealth Bank, place a volume requirement on brokers in order to maintain their accreditation. For instance, one bank requires accredited brokers to place at least six deals within a six-month period in order to maintain their accreditation. Another requires brokers to place at least one deal every six months to maintain their status.

How do you avoid this problem?

An easy way to check your chosen broker's status is to simply ask the question. In other words you need to seek their reassurance that they are not suggesting you apply at a major bank simply to fulfil their accreditation requirements. Unfortunately, you will have to rely upon their honesty when they answer this question but most brokers will be upfront with you because if they lie to you they could risk their entire licence.

Some brokers choose not to deal with these major banks that have accreditation restrictions and will advise their clients accordingly.

This does not mean that their suite of products will be unsuitable for you. Quite the contrary. The major lenders who im<>pose quotas on brokers do not always offer the most competitive products and borrowers can get an equivalent if not better deal at one of the many other options which a broker can outline for you.

Taking time to establish a relationship with a broker is at a good initial first step in assessing a broker's professional skills. Once you have a relationship with a broker it can be the start of a very rewarding partnership the will save you thousands of dollars over the term of your loan.

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