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Mortgage broker guide
A mortgage broker who can give you expert home loan help.
Keen to work with a mortgage broker? Review our guide on finding a mortgage broker so you can engage a professional to do the hard work of finding a suitable mortgage. Mortgage brokers help you with everything from finding a home loan to organising your mortgage application and settlement. Brokers are especially useful if you’re a borrower who needs a loan quickly or is in a unique or complex financial situation.
Finding a mortgage can be confusing and time-consuming (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. Learn how to compare mortgage brokers, how much they cost and how to find a good broker.
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 loans for you, then help with the application process 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 work with them to provide you with a wide selection of choices.
Borrowers who could benefit from using a broker
While you can find a mortgage yourself, some borrowers benefit from going straight to a broker. These include:
- Borrowers with a poor credit history. Brokers are helpful for borrowers with a poor credit history or discharged bankrupts. 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 payments to count as income). Still, 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 an excellent idea. A broker can help you structure your loans more advantageously and cost-effectively.
How much does it cost me to work with a mortgage broker?
Brokers are usually free for borrowers because they receive a commission from the lender the mortgagee chooses, which means brokers don’t get paid unless your loan receives approval. This may give them a huge incentive to help you gain mortgage approval.
There are two types of broker commission:
- Upfront commission. Upfront commission is the commission a broker receives for introducing the customer to the lender. It usually is 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 recurring commission is calculated based on the remaining loan amount each year and paid to the broker monthly. In addition, 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 continuous service to the client.
Some brokers charge a fee for their services, but these are generally services above and beyond sourcing a mortgage. For example, they may be a licensed financial planner who can provide investment advice and build an ongoing strategy for your finances. Check with a broker before you employ their services to get a clearer idea of potential costs.
How do I find a good mortgage broker?
- Ask for recommendations. Friends, family and colleagues can be a great source of advice. Many of the best brokers source much of their business from referrals. Ask around and see if someone you know has had experience with a good mortgage broker.
- Check reviews. Put your broker’s name into a search engine and read reviews from previous customers; it is an excellent way to get a sense of a broker’s history and service.
- Check their accreditations. Your mortgage broker needs to:
- Do independent mortgage 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. So arming yourself with information helps both you and your broker.
- Approach more than one broker. Shop around and talk to a few brokers before deciding which one you want to choose.
What are the benefits of using a mortgage broker?
A mortgage broker offers a range of services, making 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 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 broader 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 a mortgage deal that beats the current bank offers, you save money. In addition, they may negotiate a better result due to their market expertise and access to the best deals 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 choose 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 meet a lender representative because you can process the paperwork 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 those with lower rates.
- Not all brokers are equally good. As with any profession, some brokers are better than others. Some mortgage brokers run tiny businesses and may be busy, or you may be dealing with an inexperienced broker who isn’t sure how best to help you. Read customer reviews online, and remember that you’re not stuck with a broker. If you haven’t submitted a complete application, you can look elsewhere.
Questions to ask your broker
When talking to a mortgage broker, you should ask a few questions about the loans they suggest to you and their service overall; this helps you understand the broker process and your loan details.
Here are some questions you should ask:
- 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 the costs involved.
- How many lenders do you have in your network? You want to ensure that the broker has a diverse range of lenders in their panel, including banks and non-bank institutions.
- How much commission do you make? To understand the mortgage broker’s motivation, you should ask how their commission structure works. This information may help you determine whether there is a conflict of interest at play.
- Is the interest rate on my loan permanent or just a promotion? Lenders often give new borrowers an attractive low rate to win their business. This low rate is usually 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 lender’s standard variable rate. There’s no point getting an excellent rate for a year if you’re going to pay over the odds for the remaining term.
- How much of a 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. On the other hand, a smaller deposit may also mean paying a lenders’ mortgage insurance (LMI) premium. Your broker should lay this all out for you in easy to understand language.
- 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 extra payments 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 extra payments, you should also determine whether your monthly payments adjust in line with any additional payments you make.
While mortgage brokers can help you get a home loan, nothing stops you from doing it yourself. You can check out a selection of loans from different lenders. Even if you use a broker, it’s a good idea to compare some options in advance. This way, you can be confident your broker is giving you some competitive options.
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