By Dave Fleming : 20 September, 2017

What Some Mortgage Brokers
Don’t Want To Tell You

Recently I was reading an article from http://banking-and-financial-services.news.top4.com.au/ about mortgage brokers and the headline was “4 Things Your Mortgage Broker Will Never Tell You” and it went something like this; Please note; The maroon writing are my own personal comments.

home loans spelled out with scrabble letters in dark green on ivory coloured tokens laying on a mustard yellow backgroundAre you on the hunt for a home loan and considering recruiting the help of a mortgage broker? While mortgage brokers can be a great resource if you have a more complicated home loan or need a little mortgage advice, before you go down this road it’s important to know exactly what you’re signing up for.

So to help you decide, we’ve called on Mozo’s property expert Steve Jovcevski to reveal the common things a broker will never let you in on:

‘Of course Steve Jovcevski is going to be totally unbiased, right?’

1. Brokers don’t compare the entire market
Most brokers use an aggregator, which is a third party who has the accreditation to deal with the lender on the broker’s behalf.
Steve explains, “these aggregators only compare a select number of providers and home loan packages, which means when you use a broker you won’t have access to the entire home loan market and the lowest rates in the market.”

Smaller lenders offering super low rates often aren’t found on broker panels because they can’t afford to pay the commissions.

‘This can be true in some instances, except the part about the commissions. When a broker submits a customer’s loan application to a lender they virtually do so on a platter. In other words the broker has used their capital resources to bring the customer to the bank; the bank has had no capital outlay in recruiting that customer.

Also, many of these small lenders can be mortgage managers. In other words they are not strictly lenders in the true sense. They are acting on behalf of a money wholesaler who in actuality’ will be holding the title for your property as security. If the mortgage manager goes out of business the loan will revert back to to the wholesaler who might sell your loan off to the highest bidder.’

jigsaw puzzle in the shape of a house picturing bank money notes

2. Brokers receive a higher commission for recommending certain home loans
If you sign up with a home loan through a broker they will get paid a commission by the lender, which is a percentage of your loan amount. According to Steve, lenders often run a “commission special”, which means the broker will be paid a higher percentage of the loan amount if they recommend that product to a customer.

While brokers must reveal the commission they receive in the loan doc, they won’t reveal which lenders are offering the biggest commission percentages of the loan amount. “This drives broker behaviour, as the lenders that pay a higher commission percentage often receive the most leads from the broker,” says Steve.

‘In the main this is not true, brokers look to cultivate long term relationships with their customers, because they realise that some fish grow into big fish. If your butcher keeps selling you tainted meat you’re going to find another butcher. If you buy a car from one dealer and then later find that same car at another dealer for $5,000 less there’s a big chance you’ll never go back to the dealer who sold you the car in the first place.

The facts are smart brokers negotiate with lenders to get the very best interest rate they can for their customers in order to consolidate the relationship they have with their customers.

Additionally, there is very little variation in the commissions most lenders pay anyway, with the exception of specialist lenders who cater to alternative loans such as loans for bad credit loans applicants.’

silhouette of a mortgage broker in suit with briefcase trying to run up an electronic graph arrow

3. Brokers are not property experts
While mortgage brokers can help you decide on the home loan you’ll go for, Steve says it’s important to remember that they are not experts when it comes to providing you with advice about the type of property you should go for or the tax deductions available to you.

“For this type of information, you will need to speak to a financial advisor or tax accountant that specialises in property.”

‘So what, you probably never went to the broker to get property advice in the first place, they’re home loan experts not real estate agents.’

4. You can do it yourself
Since brokers only have a number of home loans that they offer to their clients, they will generally not reveal what the best interest rate in the market is. “To find this out, home loan borrowers need to search the home loan market themselves,” advises Steve.

‘Of course you can do it all yourself, but why are mortgage brokers so popular these days? Why are they now writing 55% of all the home loans in Australia today? Primarily they save their customers time and money. They do all the hard yards of finding the lenders best rates that aren’t advertised on any web site. They will save you time by accurately knowing what documents are required with any given lender and once the application is submitted work on pushing it through the bureaucratic banking system. While all this is happening you can lean back and enjoy your cappuccino.’

white cup of capuccino sitting on a white saucer

Rather than spending hours visiting each lender’s website, use a reputable home loan comparison website like Mozo.com.au to compare home loans side by side and find out which lenders are offering the best home loan rates.

Mozo compares more than 550 home loans from banks, non-bank lenders, credit unions and building societies to help you find the best value loan for your needs.

Pretty slick article don’t you think?

Now you shoot over to his website and what do you find, a comparison website selling anything and everything financial, including home loans. How do they work? Well it’s very clever, you see a lender you like and you click on the button that says ‘Go to Site’ and lo and behold you have to fill in all your personal details.

What happens next? You guessed it you get a call from a telemarketer, but you knew that was coming, right?

So, Steve Jovcevski, how do you make your money? That’s a pretty expensive web site you have there.

man in grey shirt, gold tie with glasses sitting at a table with message the good news is I'm not most lenders superimposed on the photo

The bottom line is, mortgage brokers need your support as they have been the major reason that competition is now so keen between lenders. There’s a number of good reasons as to why they are so popular, but the bottom line is they look after their customers and they do a good job.

Click for website home page

 

By Dave Fleming : 20 September, 2017

According to figures provided by the Australian Prudential Regulatory Authority (APRA) Australian borrowers in the first half of 2016 have been forced to pay almost $500,000,000 (1/2 billion dollars) on approximately 100,000 lenders mortgage insurance (LMI) policies.

One of the inherent issues with the scheme is quite a few borrowers don’t fully understand it. Many think they are the ones being protected if they default on their loan when they sign up for these expensive policies.

Although some of these polices can cost upwards of $40,000 on top of the borrowers mortgage they in fact protect the bank, not the borrower in the event of the borrowers defaulting on the loan.

What is Lenders Mortgage Insurance?

www-mastermortgagebrokersydney-com-au-what-is-lmiLenders Mortgage Insurance (LMI) safeguards the mortgage lender in cases where a home loan borrower defaults on their mortgage loan. The insurance coverage is only necessary for mortgage loans that have a balance that exceeds 80% of the property’s value at the time of application.

Historically, home mortgages were only granted up to and including a maximum of 80% of the loan to value ratio. This resulted in borrowers needing to pay an initial deposit for at least 20% of the purchase price whenever they {|were interested in buying} a house using a mortgage. That was undertaken simply because the smaller loan to value ratio led to a lower risk mortgage loan to the loan provider. In the event of a default, the lending company could claim back then sell the home quickly in a fire sale at a discounted price to recoup their funds.

Yet as the years have passed by, a number of loan providers have made it possible for individuals to borrow in excess of 80% of the home’s value. To cancel out the associated risk, loan providers now acquire insurance cover on the total amount of the loan that goes above 80% of the property’s value. This way, if the home loan gets into default, the mortgage lender will be able to recoup a portion of the debt of the mortgage loan from the insurance provider.

What do Borrowers Know?

Martin North, an independent banking analyst who operates a rolling survey of banking customers recently said that “Around Seventy per cent of homeowners believed that LMI protected them versus the lender.”

“So it is not totally crystal clear to the householder that this actually protects the bank rather than the borrower and personally I think that there needs to be a whole lot better disclosure in regard to this LMI product set.”

How Much is LMI

The premium fees for lenders mortgage insurance can vary widely based on your loan to value ratio and how much you want to borrow. Once the loan you want exceeds 80% of the value of the property you want to purchase LMI kicks in. You may want to try this calculator to see what your LMI fee will be.

For info on best interest rates go here

What Happens in the Event of a Foreclosure?

www-mastermortgagebrokersydney-com-au-foreclosureIf the borrower defaults and the bank forecloses, but the sale of the property does not cover the value of the mortgage, then the bank can make a claim under the terms of the majority of lenders mortgage insurance policies.

Peter White, president of the Finance Brokers Association of Australia said; “The insurer pays the bank, so the bank gets out scot-free,”

“But what that loss was — [the insurers] then chase the borrower to recoup their losses. That could be $100,000.”

The Details Are ‘buried in the terms and conditions’ When It Comes To Lenders Mortgage Insurance

“Borrowers were made aware of the risks of lenders mortgage insurance.” In a recent statement, put out by the Australian Bankers Association.

“LMI would typically be discussed with customers when they initially apply for a loan, be included as part of information packs, and discussed again at the final stage when the customer proceeds to purchase,” the statement said.

“The terms and conditions of LMI are included in the loan contract.”

Peter White from the Finance Brokers Association of Australia said, “Intervention is required by the Federal Government to intervene to improve disclosure to ensure borrowers fully understand how lenders mortgage insurance works and what their obligations are.

The policies he said were “buried in the terms and conditions”.

“Make it a regulated document that every banker and every broker must give to the client and the client needs to understand,” he said.

“And if it’s introduced at the beginning of the process it maximises the opportunity of understanding.”

Bio:
About About Dave Fleming

Dave is enthusiastic and fascinated by the digital and social media worlds. He is passionate and enjoys entrepreneurial pursuits, wealth creation financial strategies, health, fitness as well as cooking. Dave is the webmaster at www.mastermortgagebrokersydney.com.au, which is an information website pertaining to loans. He has a deep commitment towards writing about and helping people understand the basics of how the financial world works.

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