Whether you’re a first home buyer, upgrading, downsizing or looking to refinance your existing mortgage, if you’re looking for a home loan, a mortgage broker can help you sort through the many options on offer from different lenders. Mortgage broking is a service that can give you information upfront, help steer you in the right direction and set you up for long-term success.
And in the current interest rate environment, knowing the right broker and the right questions are more important than ever.
Here are 10 questions you should ask in order to equip yourself with enough knowledge to make big property decisions.
1. “How do I decide which loan is best suited for me?”
It is important to ask your broker how they’ll decide which type of loan best suits you and your circumstances. You need to feel confident they’re asking the right questions and are genuinely trying to assess your individual needs before answering this question, as this will provide insight into how they will discern which lenders are viable options for you.
According to Mortgage Domayne’s Mark Polatkesen, “While a holistic approach may not result in the cheapest loan up front, the more questions your broker asks, and the more they gauge your requirements, the higher the likelihood that they’ll match you to a loan that suits your needs.”
He adds, “They may also ask you about your credit cards and their limits, and will assess your borrowing power, based on your income and expenses, as well as any assets you have, and whether you prefer a fixed or variable rate home loan. Where you live may also impact what mortgage options the broker thinks might work best for you.”
2. “How much can I borrow?”
While some websites will provide an indicative guide, you’re not going to understand the full extent of your borrowing capacity based on this alone. Polatkesen notes that what you can borrow versus what you can actually afford, may not always be aligned.
“Talking to an experienced broker means they can ascertain more about your circumstances, property journey and future goals to help you understand what is possible, ensure you have the best mortgage for your personal circumstances and set a budget based on what you can afford to pay.”
3. “What information do I need to have ready for my home loan application?”
Your broker should have a printed checklist of the items you’ll need to gather when applying for a loan. As well as proof of identity, you’ll also need to provide details of your income, expenses and assets. Try to go into as much detail, with as much evidence, of your expenses as you can, including things such as utility and school bills, council rates and child support payments. Assets can include at least 3 months of bank statements to show a savings history, as well as any shares, superannuation or gifts, which must be accompanied with a statutory declaration.
Polatkesen also encourages anyone contemplating purchasing a home to undertake a credit check right at the outset so they can address any issues with their credit rating before applying for a loan, and also determine which lender they approach.
4. “How many lenders do you have on your panel?”
Asking a broker how many lenders they have on their panel allows you to understand the range of options they can offer you and can also provide a point of comparison with other brokers. In general, the more lenders a broker has on their panel, the better as this means they can present you with lots of options. Says Polatkesen, “We work with 45 lenders but not all of them do the same thing. Some are definitely more niche than others, and wont finance construction loans.”
A combination of bank and non-bank lenders including building societies is always important, as is having a choice of financial products to choose from. But you also need to feel confident your broker is familiar with all of the products on offer from the lenders on their panel. A good broker won’t just understand the needs of would-be home owners, but should also be familiar with the key features, loan terms and benefits of a wide variety of different home loan options. The mortgage industry is also a fast-changing one. So, it’s important to choose a broker that is across the latest trends and products.
5. “What is the Interest Rate?”
While you want to hear a low interest rate, a good broker will take the time to explain what the Comparison Rate is, which provides a more accurate platform to measure more than one loan product against another. Sometimes the lowest interest rate can end up costing you more in the long run when you take into consideration all the extra fees. A Comparison Rate is something banks and lenders are required to advertise alongside the regular interest rates and is a way of comparing home loans, by taking into account the fees and charges incurred over the life of the loan, as well as the interest rates themselves.
Says Polatkesen, “Interest rates can definitely fluctuate from bank to bank, but some lenders will offer lower interest rates based on how much deposit you can put up.” He adds, “Rates can also fluctuate based on the purpose on loan. For example, – who will be living in it and whether you opt for a variable or a fixed loan.”
6. “Is a variable or fixed-rate loan best for me?”
There are two types of interest rates – variable and fixed. With a variable interest rate home loan, your interest rate can rise or fall over the life of the loan. With a fixed rate loan, your interest rate will stay the same for an agreed time, usually between 1 and 5 years. Ask your broker about which one they think may be more suitable, based on your financial situation. While brokers can’t provide specific recommendations on what type of loan to go with (they offer more general advice due to licensing restrictions) they can help you understand the benefits and limitations of the options available.
A good broker will provide an easy-to-navigate list of pros and cons for each loan type and help you ascertain which one might work best for you.
Says Polatkesen, “A variable interest loan enables you to make extra repayments and pay the loan off sooner with no restrictions, plus it also allows for loan features such as redraw and offset so you can always access any extra payments. On the other hand, a fixed interest loan will give you certainty knowing that your repayments won’t change over that period of time, which can help with budgeting. However, some borrowers may find that capping how much they can make as extra repayments can be restrictive, and you can also be up for break costs if you sell the home or pay out or refinance the loan during the fixed period.”
7. “What are the fees and charges associated with my lender and loan?”
Although asking questions about fees and charges may seem obvious, it’s important to enquire about any extra or hidden costs. Ask for a full list of fees explained to you in plain English. Don’t let the broker use a lot of jargon to try and cover up unnecessary charges. Feel free to ask them to explain any fees you don’t understand. You can also enquire if they have a ‘No Fee’ or ‘Low Fee’ home loan. As noted above, fees and charges should also be explicit in the details of the home loan, from the bank or lender. It can pay to double check online if those details are available. There can be a number of fees associated with a mortgage including ongoing monthly fees, once off package fees, rate lock fees application fees, as well as valuation and settlement fees. Your broker should know what each of them means, and how much they are.
Says Polatkesen, “Some lenders will change either an application fee or an annual fee depending on the product. It really depends on the lender and the type of product you decide on. Most lenders have what we call a ‘professional package’ which is typically bundled up with an offset account, reduced interest rate and a credit card which they waive the annual fee on. However, this package will typically come at a cost of between $300 to $400 depending on lender.
He adds, “You can always look at the Comparison Rate for an indication what types of fees and charges will be payable over the term of the loan. However, this can be a little generic as lenders are required to model this off a $150,000 mortgage over 25 years, and which will not be specific to your loan.”
8. “Can I choose to fix my interest rate later?”
In a fluctuating market, it’s good to ask up front if and how you can change your interest rate from fixed to variable – and vice versa. Says Polatkesen, this is commonly referred to as a product variation and most lenders allow it. Ask follow-up questions and get your broker to list all of the pros and cons associated with it.”
9. “Can I lock in my mortgage interest rate between now and settlement?”
Yes. This means that the lender will lock in your interest rate for a period of up to 2 months from the date your home loan is approved. Even if mortgage interest rates go up before your loan has settled, your rate won’t change. Most lenders who offer a ‘Rate Lock’ will allow you to reduce your interest rate in line with any decreases in interest rates. This way you get the best of both worlds. Check that your lender will provide this for free, as some banks or lenders offer home loans with a Rate Lock fee.
Says Polatkesen, “The Rate Lock will usually guarantee that rate for a 60-day period. However if the loan doesn't settle prior to this, then you’ll either have to pay the Rate Lock again or be subject to whatever fixed rate is on offer at that point in time.”
10. What additional features would you recommend?”
Taking the time to delve into specific home loan features and understanding how they suit your circumstances can mean fewer issues down the line. Ideally, you want to be able to make additional repayments on your home loan, to be able to pay it off sooner and save in interest. Making extra repayments means you may be able to pay off your home loan sooner. If you do this, you can potentially save thousands of dollars on interest.
Another question worth asking is whether a home loan has a Redraw feature, allowing you to repay the loan faster if circumstances permit. Redraw works well alongside additional repayments, as you can withdraw any additional repayments or lump sum payments you’ve made, at any time. You don’t need to spend the money on your home and provided you’re up to date with your regular repayments, there are no restrictions to how much you can withdraw. This can be an important feature because it can help you make additional repayments with extra confidence, in the knowledge that money can still be available if you need it. One thing to remember with additional repayments and no extra fees is that there may be a cap per calendar year on how much extra you can repay on your mortgage.