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The Good, Bad, Ugly Mortgage Brokers
Do You Need a Home Mortgage Loan?
If you need a home mortgage loan then the first step is to approach either the mortgage companies or a bank to enquire whether you might qualify. Usually you will have an initial conversation with the lender to determine your situation and then you will be asked to complete many forms. You will also be asked to provide copies of your various financial statements. This can be a daunting task and many people feel uncomfortable about this. One way around this is to engage a mortgage broker whose job it is to help you through this process.
Another aspect in obtaining home mortgage loans is that you will be required to have some sort of deposit. If you qualify for a loan that is 90% of the value of the home you wish to purchase then you will need to provide the remaining 10% plus the amount of stamp duty and legal costs. Quite a number of people are able to save up to 10% but anything above that is beyond them. The remaining balance needed for stamp duty and legal costs could be supplied under the First Home Owners Grant or otherwise may be lent by family members. This means that the level of borrowing undertaken is very high, with the consequence that the repayments are high.
Do You Need a Home Improvement Loan?
The lending industry offers many different types of loan products but does not have a specific product known as a home improvement loan. If you require funds to enable you to carry out home improvements you can obtain the funds by several different means. For example, if you have a redraw facility on your home loan that is adequate for your needs, then you could use this as your home improvement loan. Alternatively, you could go back to your mortgage lender and ask them to raise the amount of the loan to cover your home improvements. If you have occupied the property for several years it has probably gone up in value so there is some untouched equity you could draw on. In this case the extra funds could become your home improvement loan. However, if your bank is unwilling to accommodate your requirements you may need to refinance with another lending institution. A mortgage broker would be able to assist you with this.
Should You Seek the Help of a Broker?
When you're seeking home mortgage loans or home improvement loans you can use a mortgage broker at no charge to you.
Did you know that mortgage brokers are engaged to act on your behalf? They act independently of the mortgage lenders, being self employed or engaged by a broking company. However, the term 'mortgage broker' can be confusing because the banks sometimes refer to their loan officers as mortgage brokers. In this case the broker does not work independently and they are not working for you but for the bank.
The task of mortgage brokers is to source the best loan for you from the various mortgage lenders on their books. They often advertise the fact that they use up to 30 or 50 lenders and so you can be sure they will find the very best deal for you amongst all these mortgage lenders. However, the reality is that most work very closely with just a few lenders. Usually this is because the terms offered by these mortgage lenders are very good and the broker has developed a good working relationship with them.
Are All Mortgage Brokers Good?
A word of caution is needed when using mortgage brokers, however. Like all professions there are a few whose conduct is less than honourable. Whilst we have said you engage the mortgage brokers to act on your behalf, there are those who have only their own interests at heart, so you should do a check on the advice they give you. As an example, their main interest could be to steer you towards a lender that pays them the highest commission. In nearly every case, this will be factored into the interest rate or charges. Therefore it is important that you check the details of the loan that they recommend very carefully. For example, in addition to checking the interest rate you should also calculate the other charges. Often there are monthly charges and, in many cases, there are also up-front charges, such as an application fee. Ask what the monthly repayments will be and make sure that any monthly charges have also been included in this figure.
Another thing to watch out for is being persuaded to accept a higher LVR than you actually require. The LVR is the loan-to-value ratio. If you can get sufficient funds to complete your purchase with an 80% LVR try not to be persuaded into borrowing more money because this will only add to your repayments. It is very much in the interests of the mortgage brokers to increase the amount you borrow because their commission is calculated on the total loan amount.
