Mortgage brokers are super helpful when you want to buy a home in Australia. They know a lot about loans and can get you the best one. But how much will you have to pay them? How do you identify good mortgage brokers? Are there laws in Australia that protect buyers like you from fraudulent practices? If so, what are they?
The short answer to all these questions is: You won’t have to pay them anything. They’re paid by the banks and lenders because they bring them customers.
The best way to identify a good broker is by following the 9-point checklist we give you in this article. And yes, there are a lot of laws in Australia that protect you from fraudulent practices.
Now, let us answer these questions in detail!
How Much Does a Mortgage Broker Cost?
Getting help from a mortgage broker is usually free for you. They don’t charge you directly because they get paid by the banks for bringing them a customer (i.e. you). If you’re getting a loan of $500,000 and the broker’s commission is 0.5%, the bank will pay them $2,500 for leading you to them.
It’s important to do your research, read the reviews and follow the 9-point checklist in this article. Check out multiple brokers and compare them. Check out the banks they’re associated with. Ask a friend or a relative for a recommendation. If a broker insists on a particular lender without providing a clear reason, it might be a red flag. Ask about the commission structure and whether they receive higher payments from certain lenders.
How Much Money Do They Get Paid?
There are many ways a broker can get paid. Here are the three most common ones:
Upfront Commissions: This is the most common way a mortgage broker gets paid. The broker brings the bank a customer. The bank gives out a $500,000 loan at 6% for 30 years (let’s say). Over the span of 30 years, the bank makes $1,079,191 (more than two times) from the customer. That’s why banks pay good money to these brokers when they bring them a customer. Once the loan is processed, the bank gives them 0.5% to 0.7% of the amount processed.
Trial commission: This is the second-way mortgage brokers get paid. Trail commissions are ongoing payments made to brokers for the duration of the loan. So, if you get a loan of $500,000 for 30 years, the brokers will get paid a small amount from the bank for 30 years. The typical trial commission is 0.1% to 0.35% (average 0.15%) of the loan amount due. In this case, after a year, you would have paid $35,982 . The loan amount due would be $484,018. Hence, the broker will get a 0.15% commission on the loan amount due (i.e. $726.03).
As long as you keep paying your loan, the broker will get a commission from the bank. If you decide to pre-close your loan (or default on your payments) altogether, the broker stops getting the money.
What are Some Other Things I Need to Keep in Mind While Working with Mortgage Brokers?
All in all, a good mortgage broker can get you a deal you would hardly get on your own. They have a big network of banks and lenders and they know how to best serve you. What’s more? The laws in Australia make sure you stay safe from fraud practices, so no mortgage broker can cheat you out of your money.
Here are some of the laws made for your protection:
- National Consumer Credit Protection Act 2009 (NCCP Act): The NCCP Act requires mortgage brokers to hold an Australian Credit License (ACL) to operate legally. Brokers are required to act in your best interests and ensure that the loans they recommend are suitable for your circumstances.
- Australian Securities and Investments Commission Act 2001 (ASIC Act): The ASIC Act empowers the Australian Securities and Investments Commission (ASIC) to regulate and supervise financial services, including mortgage broking. ASIC oversees the licensing of mortgage brokers, enforces compliance with relevant laws, and investigates any breaches or misconduct.
- Credit Regulations: The National Consumer Credit Protection Regulations support the NCCP Act by providing further details and guidelines on responsible lending practices, disclosure requirements, and other aspects of credit activities, including those related to mortgage broking. Mortgage brokers are bound by law to share all the details with you, including how much they’re getting paid by the bank.
- Best Interests Duty: As of January 1, 2021, mortgage brokers in Australia are required to follow the Best Interests Duty (BID). They are to act in your best interests when providing credit assistance. This means that brokers must prioritize your interests over their own or the interests of the lender.
As you can see, you’re protected from every side when it comes to getting a loan. But still, some mortgage brokers can steer you towards a loan that gives them a high paycheck, while ignoring your needs. They know a lot more about this business than you and they can bend the laws to grow their bank accounts.
So, how do you make sure you get the best broker? By following the 9-point checklist here.
How Do I Find The Best Mortgage Brokers in Australia? Follow the 9-point checklist.
Here’s a simple checklist to follow to make sure you explore all your options and get the best loan deal possible:
- Do Your Research: Before approaching any broker, educate yourself about mortgage basics. This will help you ask informed questions and better understand the advice you receive.
- Get Recommendations: Ask friends, family, or colleagues who have recently bought homes if they can recommend a trustworthy broker. Personal recommendations can help you find brokers with a good track record.
- Check Credentials: Ensure the broker has a valid Australian Credit License (ACL). You can verify this on the Australian Securities and Investments Commission (ASIC) website.
- Read Reviews: Look for online reviews and testimonials about the broker’s services. While these should be taken with a grain of salt, they can provide insights into the broker’s reputation.
- Interview Multiple Brokers: Don’t settle for the first broker you talk to. Consult multiple brokers to compare their advice and recommendations. This will give you a better idea of what to expect and help you spot inconsistencies.
- Understand Commissions: If a broker insists on a particular lender without providing a clear reason, it might be a red flag. Ask about the commission structure and whether they receive higher payments from certain lenders.
- Seek a Second Opinion: If a broker is pushing you toward a specific loan that doesn’t seem right, consult another broker to get a second opinion.
- Review Loan Terms: Thoroughly review the terms of the loan yourself. This will help you understand the interest rate, fees, and any potential risks.
- Request a Loan Comparison: Ask the broker to provide you with a detailed comparison of the loan options they’re recommending. This will help you evaluate the terms and choose the one that aligns with your needs.
Conclusion
Mortgage brokers are free for you because banks pay them. They get money when your loan is done and even while you’re paying it back. Brokers are bound by the law to be fair and help you. They know many banks and have special permission to help you find the right loan. Make sure to follow the above checklist while you’re searching for a good mortgage buyer.
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