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Mortgage broker guide

A mortgage broker who can give you expert home loan help.

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Finding a mortgage can be a confusing and time-consuming process (although at Finder we think there’s nothing stopping anyone from comparing rates and getting a good deal for themselves). However, mortgage brokers exist to do it for you, and usually at no cost to you.

For borrowers who are busy, find finance confusing or aren’t sure if they’re eligible for a mortgage, going with a broker is a pretty good idea.

What is a mortgage broker?

A mortgage broker is a licensed home loan expert. They have access to mortgages from a panel of lenders and they find them for you, then help with the application process all the way through to approval and beyond.

Many brokers are happy to work around your schedule and organise meetings after business hours at your home. While a mortgage broker does not work directly for banks or financial institutions, they do work with them to provide you with a wide selection of choices.

How can a mortgage broker help me find a loan?

Brokers also help you with your application process and can find loans for people in unique circumstances, such as:

  • Borrowers with a poor credit history. Brokers are useful for borrowers with a poor credit history or discharged bankruptcies. They can help you apply for regular mortgages that you may qualify for or specific bad credit products.
  • Borrowers on Work and Income payments or pensions. It’s often possible to qualify for a loan while receiving welfare payments (and using some of the payment to count as income) but a broker can help you with eligibility requirements for relevant lenders.
  • Older borrowers. Middle-aged borrowers can have difficulty receiving approval for a mortgage because they’re older and have fewer working years to pay a loan back. Brokers have a good sense of which lenders may accept your application.
  • Borrowers with complicated situations. If you’re looking to set up a complex property investment strategy or have multiple loans then a broker is a really good idea. A broker can help you structure your loans in a more advantageous and cost-effective way.

    How do mortgage brokers get paid?

    Mortgage brokers receive a commission from lenders. This compensation varies depending on the lender and the size of the transaction.

    • Upfront commission. Upfront commission is the commission a broker receives for introducing the customer to the lender. It is normally around 0.3-0.5% of the loan value. For example, for an $850,000 mortgage, a 0.3% commission would amount to approximately $2,550 in the broker’s pocket.
    • Trail commission. This is a recurring commission that is calculated based on the remaining loan amount each year, which is paid to them on a monthly basis. Some lenders offer an ongoing commission of 0.1-0.2% based on the remaining value of the mortgage. This commission is paid for the broker providing ongoing service to the client.

    Some brokers do charge a fee for their services, but they generally offer services above and beyond sourcing mortgage. A mortgage broker who charges a fee might also put together a budget for you, help identify areas in which to buy and might also be a licensed financial planner who can offer investment advice and build an ongoing strategy for your finances.

    What are the benefits of using a mortgage broker?

    A mortgage broker offers a range of services, which makes looking for a property easier on your time.

    • Knowledge. A mortgage broker has the expertise and can explain the mortgage process in clear language. They can also advise you on the KiwiSaver withdrawals or the First Home Scheme and First Home Grant if you qualify.
    • Connections. A mortgage broker has a professional relationship with lenders and, in most cases, has access to a wider range of mortgage providers, which means they have an improved chance of securing a loan that meets your needs.
    • Convenience. Brokers have access to the current interest rate deals, plus it means you don’t have to contact each bank to discover if you meet its eligibility criteria. They are also there to help with all the paperwork a mortgage entails.
    • Cost-Effective. If a broker secures you a mortgage deal that beats the current bank offers, you save money. They may negotiate a better result due to their market expertise and access to best deals currently available.
    • Pre-approval. If you are not yet sure of the property you wish to buy, a mortgage broker can arrange pre-approval so you know how much you can borrow and can confidently look at houses

    What are the drawbacks of a mortgage broker?

    Mortgage broker services are not for everyone and if you prefer to be in control of your choices and have access to the full range of New Zealand mortgages on offer, you may prefer to go direct. You can benefit by making your own comparisons because:

    • A mortgage broker is a middleman. A mortgage broker liaises between you and the lender during the entire application process, so you are unlikely to even meet a lender representative because the paperwork can be processed through your mortgage broker. This arrangement means you may not get the chance to discover the service you receive from your lender or get to know your bank manager if you need to ask a question or find out more.
    • A mortgage broker means you won’t have access to some lenders. Mortgage brokers do not show you all of the loans on offer from New Zealand lenders, which means you may miss out on lenders with lower rates.

    How do I find a good mortgage broker?

    • Ask for recommendations. Friends, family and colleagues can be a great source of recommendation. Many of the best brokers source the majority of their business from referrals. Ask around and see if anyone you know has had experience with a good mortgage broker.
    • Do your research. Mortgage brokers may have access to hundreds of different loan products, but it doesn’t hurt to spend a little time researching your options on your own as well. Remember, this is your mortgage and it is going to be with you for a couple of decades to come. Arming yourself with information helps both you and your broker.
    • Special deals might mean specific conditions. If a mortgage broker recommends a special deal, always ask if there are any conditions attached. For example, a super-cheap interest rate with one particular lender might be unbeatable in terms of rate, but the conditions could include penalty fees for extra repayments. Other special deals may include introductory offers that sound incredible but revert to a much higher interest rate once the introductory period is over. Always check if there are conditions attached to any special deals you’re offered.
    • Approach more than one broker. Always keep in mind that different mortgage brokers often have particular lenders on their list to recommend to you, because a broker must gain accreditation with each lender to offer you that bank’s products. If you consider that not every broker ends up with access to all the lenders available, it could be a wise decision to make an appointment to talk with two or three different brokers. Doing so may give you access to a wider selection of banks and lenders than you might otherwise have had.

    Questions to ask your broker

    1. What credentials do you have?

    You want your mortgage broker to complete the relevant mandatory courses as well as additional education to better guide their choices. You also want to ensure your broker is registered as a license holder or a credit representative.

    2. How long have you been in the industry?

    The length of time that the broker has been in the industry reflects their experience, so you may want to opt for a broker with more years in the business.

    3. Do you charge a fee?

    While most mortgage brokers don’t charge their clients, some do, so you should pose the question to the broker at the start so you’re clear about all the costs involved.

    4. How many lenders do you have in your network?

    As a rule of thumb, most brokers have access to 20-30 lenders. You want to ensure that the broker has a diverse range of lenders in their panel, including banks and non-bank institutions.

    5. How much commission do you make?

    To understand the broker’s motivation, you should ask how their commission structure works, which may help you determine whether or not there is a conflict of interest at play.

    6. Do you have any testimonials?

    A successful mortgage broker who has developed positive broker-client relationships will be happy to provide you with testimonials from past clients to vouch for their quality of service.

    Questions to ask about the mortgage

    1. What is the interest rate?

    The answer to this question determines how much you repay on top of what you borrow. Interest accrues over the life of the loan, and with the average mortgage lasting 15 years, you want to make sure the rate is affordable.

    2. Is the rate permanent or just a promotion?

    Lenders often give new borrowers an attractive low rate to win their business. This low rate is normally temporary and sees you revert to the lender’s standard rate when the promotional period is over. Find out whether the advertised interest rate is permanent, and if it isn’t what’s the lenders standard variable (floating) rate. There’s no point getting a great rate for a year if you’re going to pay over the odds for the remaining term.

    3. Why have you selected this loan for me over other loans?

    By law, mortgage brokers must choose a mortgage for you that is “not unsuitable”, which means the features, rates and fees should be a good match for your personal circumstances. Make sure you find out how your broker arrived at the decision to suggest a particular mortgage for you, including which of your personal circumstances were taken into account.

    4. How much deposit do I need?

    Ask how much deposit the lender wants, and find out whether the size of the deposit affects the interest rate of the loan. Sometimes a lender gives you a better rate of interest if you put down a larger deposit.

    5. Can I make extra repayments or repay my loan early?

    The quickest way to repay your mortgage and save money in interest is to make overpayments whenever possible. Double-check your lender is happy for you to do this without penalty. Some lenders charge an admin fee to process additional payments. Whilst you’re on the subject of overpayments, you should also find out whether your monthly payments adjust in line with any additional payments you make.

    6. What are the additional charges?

    The most common charges you run into when taking out a mortgage are valuation fees, application fees and legal fees. It’s not unusual for lenders to run special promotions where you get a free valuation or help with fees. Ask if there are any additional charges, and find out whether you can pay them upfront or if they have to be added to your loan.

    7. What documents do I need to provide?

    Normally lenders need to see three to four months’ worth of bank statements, along with a couple of forms of I.D (for example a passport or driver’s licence) and proof of your assets and liabilities. Ask whether your lender has any other requirements as this speeds up the application process.

    8. How long does it take to process the loan?

    In the property market, a few days can make a big difference. Try to get an estimate of how long the application process takes, and don’t try to settle on a property too early into the process. It’s a good idea to get pre-approval before you go hunting for the home of your dreams.

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