Money Tree Financial Solutions

Questions to ask your broker

1. What are your qualifications?
Before discussing your own finances, check that the mortgage broker is fully qualified to give you professional guidance. As a minimum requirement, an Australian mortgage broker should have a Certificate IV in Finance and Mortgage Broking, and they should operate under their own Australian Credit Licence (ACL) or as a credit representative under another entity’s ACL.

2. Do you have a range of lenders?
One of the main benefits of consulting a mortgage broker is that they have the ability to sort through a wide range of products from a wide range of lenders on your behalf. This saves you the stress of trying to assess all the different products on the market in order to work out what is best for your needs.
If you feel that your broker is only offering you a limited number of products, feel free to ask why, or to find a broker who can give you a more comprehensive view of your options.

3. What kind of clients do you specialise in?
You want a mortgage broker who is highly experienced with your particular situation. If you have a steady job, a decent-sized deposit and you are looking to buy a residential home, then your loan will be fairly straightforward. But if you are planning to build an investment portfolio, if you have a complicated financial history or even if you are self-employed, you will need to find a broker who knows from experience how to help you.

4. What is the best loan for my circumstances?
Your broker should be asking you plenty of questions in order to make a decision about the best loan for you. They should also give you a few different options and explain the relative pros and cons of each one, so you can make an informed decision.

When your broker explains why they chose a particular loan for you, they should cover the interest rate, the interest rate type and structure, along with the loan features and loan to value ration (LVR).

Home loans generally include special features, such as the availability of a redraw facility or an offset account, or the ability to make additional repayments when you wish. Talk to your mortgage broker about your plans for the future – such as whether you intend to start a family or renovate the home – as these plans will have an impact on which features could be more beneficial for you. It’s also useful to consider which features would be helpful in a “worst case” scenario, such as sudden unemployment or long-term health issues.

5. How much can I borrow?
In order to answer this question, your broker should be making calculations based on the information you provide. You will need to tell the broker how much deposit you have saved and your intended purchase price, along with your current income, living expenses and any outstanding debts. It is also important to note whether you are planning to purchase a residential home or an investment property.

6. What fees will I incur on the loan?
While mortgage brokers are generally paid by commission, some will also charge you a fee for their services. There could also be fees for more complex loans, such as if your deposit is less than 20% of the purchase price or if you are refinancing a loan. Ask your broker whether they will charge you any fees before you sign any paperwork.

7. What will the true cost of my home loan be?
Your mortgage broker should be able to tell you how much you will spend on the property in the long term, based on the length of your loan term, the size of your deposit, and whether you are paying principal and interest or interest only. This is an excellent opportunity to assess how you could adjust your payments to reduce the length and overall cost of the loan. Paying a little more of the principal each month, for example, may not cut into your regular budget too much but it could save you thousands over the life of the loan.

Tip: Paying an extra $20 per week off your home loan cuts 3 years and 2 weeks off your mortgage.

It's time to log onto your online banking and increase your weekly mortgage repayment today... you'll be glad you did!

(*example based on a $350,000 loan at 6% average rate)

Tips to pay off your mortgage sooner

Your home loan is probably the biggest financial investment you will make, and you want it to give you a sense of security rather than stress. While paying off your home loan might seem a formidable task, there are ways you can reduce your mortgage, and thereby reducing the interest you pay overall.

Make your home loan your priority
Whatever else is going on in your life, the payment set aside for your home loan should be sacred. Set a realistic regular amount to pay off your home loan and stick with a budget for your remaining income. It’s also a good idea to place any lump sums directly into the mortgage, so you can build equity and reduce interest payments.

Avoid “honeymoon” deals
At first glance, some of these cheap rates can seem very tempting. However, once the honeymoon is over, you will find yourself facing a higher variable rate of interest which can mean that you lose any ground you gained with the earlier low rate. These lenders also often set expensive exit penalties, so it is even costly to walk away from the scheme.

Consolidate your debts
Rather than paying off multiple credit cards at varying rates of interest, consider a debt consolidation loan where you combine all your debts into one payment. This generally comes with the benefit of lower interest and it is definitely more efficient than keeping track of multiple repayments. By paying all your other debts off more cheaply and efficiently, you can focus on repaying your mortgage payments faster.

Place lump sums in your mortgage account
By paying any lump sums such as bonuses or inheritances straight into your mortgage, you reduce the capital, thereby reducing the interest you need to pay in the long term.

Pay off the principal / Make repayments at the higher rate
Your goal with your mortgage is to pay off the principal as this will reduce the interest on your loan. Every dollar you pay above the repayment account cuts down the overall amount of your loan, reducing your interest payments over the long term. One strategy is to set yourself the goal of paying off the loan over a shorter time period than necessary. This way, you will make substantial savings by reducing the interest you have to pay, simply by increasing your regular payment.

Another strategy is to pay off the loan as if you are dealing with a slightly higher rate of interest. This way, you will reduce the principal and you won’t feel the pinch if the interest rate does rise. Alternately, you can make more frequent payments, as this also reduces the principal more quickly.

Set up an offset account
An offset account is a transaction account attached to your home loan. The balance of a 100% offset account is deducted from the principal remaining on your loan, reducing your interest rate. For example, if you have $20,000 in your offset account, this amount is offset against your mortgage so your interest payments are charged on $20,000 less than the principal.

Seek expert advice
With different loan products and incentives released regularly, you can benefit from regular expert advice from a mortgage broker to ensure you maintain the best possible strategy to reduce your home loan faster.

Why do you need a mortgage broker?

A mortgage broker is an independent person or business who specializes in finding the most suitable home loan for a customer, based on the customer’s individual needs and circumstances. Basically, like any broker the mortgage broker liaises between you as the property buyer and the banks or lenders who will lend you the money for your mortgage.

So why go to a mortgage broker when you can contact the lenders directly?

Open communication
Unlike banks and other lenders, the mortgage broker isn’t looking to sell you a specific product whether it suits you or not – the broker wants to give you a full view of the market and find the right product for you. This opens up communication, as the broker needs to find out as much as possible about your requirements in order to select the most suitable loan package. And when you have questions or concerns, your broker will answer these directly.

The broker’s communication skills work both ways – as they have an ongoing relationship with the lenders, they can negotiate to tailor the loan for your needs.

Your broker will also know how long each lender generally takes to approve a loan application giving you a realistic timeframe, so you know when you can start house hunting in earnest.

Wide range of options on offer
Some lenders will work exclusively with brokers, so they can offer you options that would not be available to you as an individual. Different lenders will differentiate their products with honeymoon rates and special deals, making it more difficult for you to work out who is offering what you actually need and want. The broker will also help you make realistic comparisons between different lenders, so you have a better understanding of what features you are looking for in your own loan agreement.

Convenience
Your loan agreement is an important financial commitment, and there could be a huge cost difference over the long term between two loans that seem right on the surface. It can take you a great deal of time to navigate the mortgage marketplace, making comparisons and calculations and filling out loan applications… and if you take a wrong turn, it can be a costly error. A mortgage broker can navigate the market on your behalf, saving you valuable time and money.

If you would like to know more about how a mortgage broker can secure the best home loan package for your needs, contact us today for a free consultation.