An insider’s guide to home loans: Part I
A few years back I ended up running communications for a national mortgage broking network. I thought I knew stuff about stuff, but oh boy, I didn’t know shit about mortgages.
There was an awesome guy whose desk I would sidle up to and ask questions about the finer details of securitisation and cross-collateralisation (thanks for the tips Parso!). I also sat next to the head of compliance, who was actually way more fun than he sounds, and heard a lot about what mortgage brokers are meant to do correctly.
So, with interest rates at record lows, I thought it was time to give you some insights I picked up along the way. There are quite a few so I am making a series. Fancy, huh?
If you are applying for a new home loan or want to refinance your existing one, this post is for you.
Mortgage brokers are great – but find a good one.
There are literally thousands of different home loan products on the market, so it’s really bloody helpful to have someone navigating them for you.
You don’t need much in the way of education to be a broker: the job is essentially knowing which products are going to be right for the client and then helping get the application approved. There can be some serious work involved for the broker, like chasing lenders, fixing paperwork etc., so it’s not easy as such, but it’s not complex in the way that financial advice is.
The qualities that make a good broker are (in my opinion): they listen to your needs; know their products well; are happy to help and answer questions; and they can push through roadblocks that might come up.
Different brokers generally have a lot of the same products available. Without going into the details of how the industry works, they usually give you access to all the main banks, smaller lenders like credit unions, and then often a ‘white label’ offering – that’s essentially like a home brand if they are part of a big broker network.
Ideally the broker should show you a few options to compare. The key things to look for are:
- a cheap interest rate
- any additional fees – application fees, annual fees etc
- extra features like an offset or redraw
- any restrictions on early repayments, especially if it’s a fixed loan
- how easy/fast the lender is to deal with (there can be quite a variation)
Like most things in life, home loans can involve a bit of compromise. Like, you want an offset account so you need a product with an annual fee. Or you want the super cheap bargain basement rate, but it doesn’t come with an offset. The broker should help you weigh up these features.
The best way to find a good broker is to ask around with friends and family, or check out their Google reviews. You can usually tell straight away if your broker is decent. They will make the whole thing seem easier, and it will feel like they are really on your side.
By the way, you don’t pay the broker yourself – their fee is paid by the lender. So that’s one less thing to spend on, during an otherwise annoyingly expensive process.
Do you absolutely need a mortgage broker?
No, but I don’t see a lot of downsides to using one. They do a lot of the paperwork and worrying for you. They have more options than you can find yourself. And they know all the stuff that gets a loan approved – remember, they don’t get paid unless you get the loan.
Just be wary of how much you borrow. Because they take a percentage fee, brokers are indirectly incentivised to get you to borrow more.
There is sometimes quite a difference between what you CAN borrow and what you SHOULD borrow. It’s the difference between being able to sleep at night, and having a good buffer if higher costs or lower incomes happen to you along the way.
If 2020 has shown us anything, it’s that being absolutely maxed out on credit is dangerous, because you never know when a global pandemic will come along and kill your job.
And, as with any service provider, keep a slightly sceptical air about you. Always trust your gut and don’t be afraid to ask lots of questions.
Overall, a good broker is up there with a good accountant, hairdresser and mechanic: very helpful for adulting successfully.