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Mortgage broker franchise loans

Find out how to apply for a mortgage broker franchise and compare finance options now.

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Mortgage brokers play a vital role in helping people buy their own home, refinance their mortgage or find an investment property. If you’re thinking about working as a mortgage broker but don’t have much experience, a franchise can give you the support and training you need to run your business.

Find out how mortgage broker franchises work, how to apply and compare business loans below.

How does a mortgage broker franchise work?

Mortgage brokers help people find home loan products that meet their needs, whether that’s to purchase a new house or investment property or to refinance their existing home loan. A mortgage broker will contact and negotiate with the bank or other lender to secure a suitable home loan and will then get a percentage of the loan amount as commission.

A mortgage broker franchise allows you to run your own broker business under the umbrella of the franchise brand. In return for paying a franchise fee, you get access to the franchise branding as well as ongoing training and support to help you run your brokerage. Mortgage brokers remain a popular choice for franchisees in New Zealand and often require lower upfront and operating costs compared to other franchise options.

How much does a mortgage broker franchise cost?

While the initial costs of a mortgage broker franchise are relatively low compared to other retail franchise options, there are a number of upfront and ongoing costs you will need to keep in mind when starting your own broker franchise business.

  • Initial franchise fee
  • Set-up costs e.g shop fit-out, stock, signage
  • Royalties / franchise fees
  • Marketing or advertising fees
  • Other ongoing fees e.g. training, insurance.

What other costs do I need to consider?

Unlike other types of franchises, your work premises are not covered as part of your initial franchise fee, so you will have to source your own office. Many people who begin operating a mortgage broker franchise start off working from home or in shared office premises.

As such, the initial costs associated with the mortgage broker franchise are similar to those for any other work from home or freelance position.

Consider the following expenses that you may need to consider when initially setting up your mortgage broker franchise:

  • Rent (if applicable)
  • Laptop computer (essential for portability, in addition to or in place of a desktop computer).
  • Multifunction device or separate printer and scanner.
  • Business telephone line.
  • Mobile phone.
  • High-speed Internet.

In addition, consider the following ongoing expenses that you may need to cover:

  • Accounting and bookkeeping services.
  • Insurance, including public liability and professional indemnity.
  • Membership fees in professional associations.
  • Phone, Internet and mobile phone expenses.
  • Stationery and consumables.

When considering the startup costs of a mortgage broker franchise, remember to include the following:

  • Legal fees. It’s a good idea to get independent legal advice before starting a mortgage broker franchise.
  • GST. Most people who consider running their own mortgage broker franchise will create a new franchise, in which case GST at the usual rate of 10% is payable on the purchase price. It is only if you choose to purchase an existing mortgage broker franchise that you can avoid paying GST on the purchase price.

How profitable are mortgage broker franchises?

One of the biggest advantages of a mortgage broker franchise compared to other franchises in New Zealand are the relatively low startup costs. Some people will be able to self-fund their mortgage broker franchise, while others start out with only a small loan. This means that a greater proportion of your revenue will be profit, rather than directing your earnings to large franchise loan repayments.

Another factor that helps the profitability of mortgage broker franchises is the lack of high overhead. Many people run their mortgage broker franchise from home, at least initially, which drastically reduces their overhead compared to other types of franchises. It is only as the mortgage broker business continues to grow and becomes profitable that franchisees may opt to employ staff and move into rented office space.

Putting a precise figure on the average income of mortgage brokers in New Zealand is difficult as estimates vary to a large extent. The industry average for commission is 0.6% of the initial loan amount. So for a $500,000 house, the upfront commission would be $3,000. A mortgage broker can also receive a trail commission for each year the loan remains with a lender.

As with any type of franchise, the profitability will largely depend on the skills, determination and hard work put in by you as the franchisee.

What experience and qualifications do you need to start a mortgage broker franchise?

In addition to any in-house training that the franchisor may provide, you also need to become an Authorised Financial Adviser (AFAs) in order to practice as a mortgage broker.

To become an AFA you need to:

  • Gain the National Certificate in Financial Services – Financial Advice (Level 5).
  • Get authorisation to practise from the Financial Markets Authority (FMA).
  • Join and register with a Dispute Resolution Scheme (DRS).
  • Be registered on the Financial Service Providers Register (FSPR).

How to get finance for a mortgage broker franchise

You have a number of financing options when it comes to funding your broker franchise.

Franchise loan

A franchise loan has a term that is dependent on the term of the franchise agreement. As such, in contrast to typical business loans with their 25- to 30-year loan term, mortgage broker franchise loans have terms that are generally less than 10 years. The borrowing amount is based on the value of the business, which will be determined by the lender itself, and may not relate directly to the amount you have negotiated with the franchisor.

Approved franchise loan

A lender that has mortgage broker franchises on its current approved list will be likely to lend close to 70% of the value of the business.

Finance from franchisor

Some franchisors recognise that it can be difficult to obtain finance to purchase a franchise and will offer their own finance arrangements to potential franchisees.

Franchise finance for less expensive franchises

Many potential franchisees become frustrated trying to obtain finance for a less expensive franchise, like a mortgage broker franchise. If the loan amount of your franchise is less than the minimum for a business loan or franchise loan, consider applying for a personal loan instead.

Business loan

With the right residential property put up as security, a business loan could offer up to 100% finance, with a loan term of up to 30 years.

Family loan

Before applying for a franchise or business loan, consider if there is anyone you know personally who might be willing to lend you the amount that you need to start your franchise. Always have a legally binding contract drafted to protect the interests of all parties.

Savings or equity

If you have considerable savings, consider funding your own franchise rather than taking out a loan. Similarly, depending on your circumstances, look into refinancing your residential property to access your equity.

What should I consider when comparing my financing options?

  • Approved franchises. Are there any banks or other lenders that have mortgage brokers on their list of approved franchises?
  • Loan amount. How much do you need to borrow? How does this compare with the minimum borrowing amounts for different loan types?
  • Loan term. Are you looking for a short loan term of up to 10 years or a longer term of up to 30 years?
  • Personal savings. Are you willing to invest liquid assets or personal savings?
  • Residential property. Do you have enough equity in a residential property to consider refinancing?
  • Interest rates. How does the interest rate of one lender compare to similar lenders?

How do I get approved for finance?

Give yourself the best chance of success when applying for mortgage broker franchise loans by considering the following:

Financial history. The lender wants to know that the business is a good financial decision. If purchasing an existing mortgage broker franchise as a going concern, provide all audited financial documents for the business. If you are looking to start your own mortgage broker franchise, provide all the necessary financial information relating to yourself.

Experience and qualifications. The lender also wants to know that you have the experience and qualifications needed to successfully run a profitable mortgage broker franchise. Update your CV, ensuring that you clearly outline all your relevant experience and qualifications.

Business plan. The lender also needs to know that you have detailed plans for the future of the franchise. Create a business plan detailing cash-flow forecasts as well as projected sales and profits for at least the next two years of the business.

Good mortgage brokers are a rare breed, successfully combining analytical skills with people skills and the ability to build close professional relationships over time. If you feel that you possess the right skill set, a mortgage broker franchise could be a profitable, low-risk business opportunity.

Pictures: Shutterstock

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