In the past you may have put mortgage brokers in the same pile as shonky car salesmen or dodgy real estate agents – someone wearing a cheap suit, sporting a bad haircut, handing out self-printed business cards.

Thankfully this stereotype is mostly untrue. The mortgage broking industry is now licensed, professional and used by more than a third of all borrowers.

Most importantly, a broker’s services are usually free. If you shop around and choose the right broker, you could save yourself time, stress and a lot of money. What exactly do they do?

First, you should be clear on exactly what a mortgage broker does and how they earn their living.

A mortgage broker’s role is to recommend the most suitable mortgage product and then guide you through the application process and settlement of the loan.

Keep in mind that brokers do not approve loans themselves, the lender will still decide if you meet the criteria to qualify.

A good broker though will understand all the fees, terms and conditions associated with the products they recommend and will look beyond just the interest rate.

‘The best deal is not necessarily the cheapest rate. A good mortgage broker will examine your circumstances and future plans to recommend a loan that is right for you,’ explains Phil Naylor, CEO of the Mortgage and Finance Association of Australia.

As a licensed credit representative, a broker must enquire about your financial situation, your requirements and objectives, and take reasonable steps to verify this information before making a preliminary assessment as to the suitability of a particular lending product. Lender limitations

No broker will be able recommend loans from every lender in Australia. (If you have a particular lender in mind, it might be best to go directly to that lender).

Brokers have agreements in place to recommend loans offered by a panel of lenders. Usually a broker’s panel will be made up of a mix of banks, credit unions, non-bank lenders and specialist lenders.

As a result, they can search across their panel of lenders to find the most suitable loan to meet your needs. Brokers have to become accredited with the lender to offer their products, and are required to keep up-to-date with their latest offers.

‘The choices now available in the mortgage market can seem limitless and completely overwhelming. You can choose to research the subject, the lenders and their products yourself, or work with a mortgage broker who already has that knowledge,’ Naylor explains. How do they earn a living?

Consumers generally do not pay a broker for using their services (some brokers charge service fees in special circumstances). Brokers earn their living by being paid commission by the lender who provides the loan. The payment is essentially for introducing the customer and maintaining that relationship. Commission rates vary from lender to lender. How do you choose a broker?

Make sure you ask these questions:

  • Can I see your ASIC licence? It is illegal for a broker to operate with out an ASIC license or registration. Vet them yourself at ASIC.
  • Are you a member of an industry body? Use a broker that is a member of the peak industry body, the Mortgage and Finance Association of Australia (the MFAA)
  • How do you resolve disputes? Licensed brokers must have an internal dispute resolution process and be members of an approved external body for handling consumer complaints, such as the Credit Ombudsman Service (COSL).
  • Who is on your panel? Ask to see the list of lenders they are accredited with and ask how they are paid by each of these lenders. Are there any conflicts of interest?
  • What are your fees? Some brokers may charge a service fee in addition to the commission they receive from the lender.

Once you’ve chosen…

Your broker should always act in your best interests and you should never feel pressured into signing any agreement or contract.

Posted by Larry Schlesinger – Media Giants on 24th June, 2011