Among the many victims of the Royal Commission into the banking industry have been mortgage brokers.
After years of basking in the afterglow of Aussie Home Loans spruiker John Symond’s famous catch phrase “We’ll save yah!”, many are now asking: But do they?
During Royal Commission evidence, the question that kept recurring was: Who do they work for? Their clients? Or the lenders who pay them huge trailing commissions which, of course, we all ultimately pay for?
Mortgage brokers write more than half of all home loans in Australia.
Yet under consumer credit law, brokers are not required to find a loan that is in a borrower’s “best interests” but must simply satisfy themselves the loan is “not unsuitable”.
Given they are usually paid commission by the lenders, that’s a big conflict. Which is why we’ve heard evidence this month that many falsified earnings, ignored warnings about borrows’ ability to pay and simply followed the money.
It’s easy to see the attractions of using a mortgage broker. Rather than work out what is on offer from each lending institution which can be time-consuming and confusing, it is so much easier to let the mortgage broker do the legwork for you.
While a broker can save you time, they can also cost you money.
What fees should you pay a mortgage broker?
It depends on the mortgage broker, but often, absolutely nothing. Lenders and credit providers pay the upfront commission upon settlement of your home loan.
Some brokers charge a fee for service, according to uno, the online mortgage broker site.
Brokers usually work on commission, which can come in two parts: the upfront commission and an recurring monthly commission says Mozo, the money saving zone website.
The upfront commission is the most common, and the amount varies from lender to lender, between 0.3-0.7% of the loan value. So, for example, if you ended up taking out a $500,000 home loan, and your broker was working on a 0.5% commission, they would make $2,500 straight up.
The recurring commission is based on the remaining loan amount for each year of your home loan and paid to your broker on a monthly basis. This type of commission is less common, and pays a smaller percentage, often less than 0.3%.
The important thing to remember about these commissions, is that each lender offers different rates. So, if your mortgage broker stands to make a 0.3% commission from one and a 0.7% commission from another, guess which one they’re going to recommend?
To help you decide, here is a list of questions you should ask the broker.
- How many lenders does the broker deal with? No point going to a broker who only recommends products from two or three lenders. You can compare far more products by yourself by logging on Canstar’s compare home loans table.
- Find out if the broker is a member of the Mortgage & Finance Association of Australia? If he is, he is required under the MFAA Code of Practice to disclose his fees and commissions.
- Find out what are the refinancing costs which include loan application fee, property valuation fee, lenders’ mortgage insurance fee. They have to be paid by the borrower in addition to the payment the broker gets.
- Check that the broker is licensed. You can always search ASIC Connect’s Professional Register to check on whether the broker is licensed or ring ASIC infoline: 1300 300 630.
- Get a written agreement from the broker. This should include the type of loan being arranged, the amount of the loan, term of the loan, the current interest rate and any fees you have to pay. Find out if you are also liable for any early termination fee.
- Never sign blank forms or leave details for the broker to fill in later. If you feel you are being pressured into signing, ask for more time to think about the loan, advises ASIC’s Money Smart site.
- Never sign a declaration that the loan is for a personal, domestic purpose or buying a residential property. By signing a declaration, you may lose valuable rights under the National Credit Law.