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How to get the right
home loan
By Sarah Mills,
ninemsn money
When you take out a loan, you
are basically buying money. Money is a very simple
commodity, which means you should be able to compare
the price of loans (money) at a glance, in the same
way you might compare a litre of fuel. In reality,
this rarely happens.
Lenders understand that it is
not in their interest (excuse the pun) to embark on
a rate war with each other for market share and have
instead opted to attach any number of bells and
whistles to loans that ultimately obscure the true
cost to the borrower.
Some of these bells and
whistles, such as redraw facilities, can be very
convenient, even desirable. What the borrower needs
to know, however, is how much they are paying for
that convenience.
The financial industry has
largely resisted efforts to publish the "real"
interest rate on a loan and the average borrower
today is pretty much confounded by the thousands of
home loans on the market offered by hundreds of
lenders. Not even a rocket scientist could easily
calculate the best home loan in the market today
without a fairly sophisticated software package or
strong industry knowledge.
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This
facility is provided as a guide only.
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This obfuscation, along with reduction in branch
networks and strong competition for home loans, has
in part been responsible for the mushrooming of the
mortgage broker industry. Virtually non-existent 15
years ago, mortgage brokers now write at least 30
percent of all loans in Australia.
In theory, the mortgage
broker's job is to be familiar with all the loans on
the market so that when you enlist their services,
they can find a loan that matches your circumstances
and offer the best deal for you. They can save you
time and money, help explain loan documents, costs
and disbursements and even negotiate with the lender
on your behalf.
Not all mortgage brokers,
however, are working for you. Mortgage brokers make
their money by receiving commissions from the
lenders, which can affect their impartiality. Some
have relationships with only a few lenders, which
means you don't have access to all loans on the
market. Others may only offer the products of one
bank. Others may simply suggest to you the loan that
pays them the highest commission, not the one that
gives you the best deal.
Alas, the borrower is now like
the old woman who swallowed the fly and then has to
swallow a spider to catch the fly: it may have been
difficult calculating the cheapest interest rate,
but it can be even more difficult calculating the
independence or honesty of a broker.
Tips for getting the best
deal from mortgage brokers
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Sign a contract up front with the mortgage
broker that fully outlines both parties'
expectations and obligations. |
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If you have a verbal agreement with a broker,
get it in writing. |
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Ask the mortgage broker how much the service
will cost you and when you have to pay.
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Make sure your contract stipulates that the
broker only gets paid if they get a
loan that suits all your requirements. |
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Don't pay an upfront free. Do not pay any fee
until the lender has approved the loan. |
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Ask if the broker belongs to an industry
association and if that
association has a dispute resolution policy. |
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Discuss their methodology upfront. How do they
identify the best solution? Is it commission-based? |
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How many loans do they evaluate through that
package and how many lenders do they represent? |
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Call a range of finance brokers and
ask about their charges and their offerings. Ask
friends for recommendations. |
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Do not sign
anything without reading it carefully. Do not be
pressured into signing. |
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If you do not understand something in the
contract, get independent advice. |
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Ensure your broker is not just a lender in
disguise, offering only one company's loans. |
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Ask how the broker gets paid. Ask them to
disclose all commissions, payments and kickbacks
they receive. |
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Ask them to provide a formal comparison of any
loans recommended, including upfront and ongoing
fees. |
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Ask them to clarify the actual cost of the loan,
including and excluding interest, fees and
ongoing costs. |
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Double check. You can cross check your broker's
final recommendation by accessing the online
calculators. |
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Ask if they comply with the Privacy Act. You
want to protect your financial and personal
details. |
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Ask if they have professional indemnity
insurance. |
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A written agreement with a
mortgage broker should cover the following:
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Any fee to be paid and the
payment date (which should be after the loan
confirmation). |
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The type of loan. |
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The amount of the loan. |
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The term of the loan. |
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The interest rate, whether
it is fixed or variable and the term of any rate
offer. |
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The loan's features such
as draw-down facilities. |
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All lender's fees such as
application fees, establishment fees, solicitor
costs, etc. |
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