Mortgage Broker Fees

Mortgage Broker Fees

Mortgage broker fees are often discussed in many different places. Working with a good mortgage broker offers you access to an array of home loan products and lenders. However, you may be wary of any fees your broker charges. This breakdown will tell you everything you need to know.

The first thing you need to know about mortgage broker fees is that most brokers don’t charge them so you usually won’t have to pay a penny. Some however can charge a fee for service and in these instances they will provide you with a detailed Credit Quote.

Instead, the broker earns a commission from the lender or credit provider for each loan they help secure. The size of this commission depends on several factors, which we detail further down.

How do mortgage broker commissions work?

Most mortgage brokers receive an upfront commission for their services. Many also receive an ongoing or recurring commission, known as “trail” or “trailer” commission, for each loan they secure. Both these commission payments are made by the lender – not the customer.

Lenders pay the upfront commission upon settlement of your home loan. They’ll then pay the trail commission for each year of the loan’s life.

The amount of money your broker receives can depend on two factors:

  • The size of the loan; and
  • The loan to value ratio (LVR).

Your broker will receive a percentage based on these figures. These usually amount to the following rates:

  • Between 0.60% and 0.70% of the loan amount, plus GST, as upfront commission; and
  • Between 0.15% and 0.25% of the remaining loan amount, plus GST, per year as trail commission.

Some lenders offer mortgage brokers a trail commission structure that sees the commission increase each year. For example, the broker may receive no trail commission during the first year of the loan, up to 0.15% in the second year, and so on during the lifespan of the home loan.

The upfront and trail commission amounts that a broker expects to receive in relation to your home loan should be detailed in the Credit Proposal Disclosure Document.

What is trail commission?

Trail commissions are the broker’s reward for ongoing services provided to the you as the borrower and for delivering a good borrower to the lender.

Lenders prefer long-term loans and reliable borrowers. From the lender’s perspective, a good borrower makes repayments on time, ensuring the home loan doesn’t lose money for the lender.

Sometimes lenders will charge “clawback” fees to your broker if you stray from the original loan structures. We discuss this in greater detail below.

If you default on your home loan repayments, the lender may also impose a “clawback” provision plus will not pay trail commission to your broker. Some stop their payments if your loan account stays in default status for more than 60 days. Others stop paying trail commission within a month of you defaulting on a payment.

How much should I pay a mortgage broker?

It depends on the mortgage broker, but often, absolutely nothing. As outlined above, lenders pay the upfront commission upon settlement of your home loan. Some brokers charge a fee for service, as detailed in their Credit Quote.

What percentage does a mortgage broker get paid?

Your broker will receive a percentage based on the size of the loan and the loan to value ratio (LVR). These usually amount to between 0.60% and 0.70% of the loan amount, plus GST, as upfront commission; and between 0.15% and 0.25% of the remaining loan amount, plus GST, per year as trail commission.

The percentage your broker receives also depends on whether they go through an aggregator or not. If they go through an aggregator it will be dependent on the aggregator’s agreement with the lender and furthermore, the broker’s agreement with the aggregator. We explain more about aggregators further down.

Can a mortgage broker pay a referral fee?

Yes. A referral fee is often a percentage of the commission received by the broker and is paid to a regular referrer that your broker may enter into an arrangement with. For example, if a financial planner recommends their client see a particular broker, that broker may then pay the financial planner for the introduction and/or the client, depending on the agreement.

How much are solicitors’ fees for buying a house?

It depends but usually they will be somewhere around $1400 or $2000.

What is the average salary of a mortgage broker?

It is entirely dependent on how many loans they write. Most brokers rely on commission. As with any business however mortgage brokers incur a number of business related expenses in the running of their business, these include amongst other things paying Aggregator fees, licencing fees, wages to any administration staff and motor vehicle expenses.

How much does the real estate agent make on a sale?

A real estate agent will make whatever their commission agreement is as a percentage of the sale price. It might be around 1 to 3% of the sale price.

What are the responsibilities of a mortgage broker?

The role of a mortgage broker is to recommend a product that is not unsuitable for the customer. Mortgage brokers also help customers apply for their home loan. More than half of all new housing loans in Australia are now originated through brokers.

The Australian Securities and Investments Commission (ASIC) regularly reviews the mortgage broking industry. At the request of the Government, in 2015, ASIC conducted a review of the mortgage broking market to determine the effect of current remuneration structures on the quality of consumer outcomes.

The findings of that review, published in 2017, can be accessed here.

This year, ASIC is conducting a shadow shopping exercise to consider whether “broker advice” results in “positive consumer outcomes” and “how consumer outcomes could be improved.”

What do aggregators do?

Aggregators are third party broker groups that connect brokers with lenders. Many brokers use these broker groups to head their operations, help them lower the costs of business and for professional development training.

A portion of the broker’s commission is usually passed onto the aggregator for these services. This fee can range from 0% to 50% of the broker’s commission.

In return, your broker can use its aggregator’s position in the home loan industry to access better products. This can benefit you because it means you have more choice and access to special discounts.

What are “clawback” fees

Lenders want reliable borrowers who stay with the same home loan product for a long time. As a result, if you stray from the original loan structure you signed up for, a lender will charge “clawback” fees to your broker. Just as it sounds, this is the act of clawing back money.

Lenders typically charge clawback fees to the broker if you refinance your home loan within the first two years, or if you pay it off completely in the same period. The clawback differs depending on the lender, but most take back all of the upfront commission if the loan ends within the first 12 months. This may drop to half if the mortgage ends in its second year.

The bad news is that some mortgage brokers will ask you to pay this clawback fee. This should be detailed in the broker’s Credit Proposal Disclosure Document. It’s also wise to examine your contract for mentions of this fee before signing it. Happily, you can dispute your broker’s clawback fees if the contract you signed does not mention them.

And, just so you know – Customers First Mortgages & Insurance absolutely does not charge customers clawback fees.

Those who want to pay their home loans quickly should look for brokers who don’t pass on any clawback fees..

Also, keep in mind that it’s sometimes beneficial to pay a clawback fee if it means you gain access to a better home loan product. You should always speak to an adviser before doing this.

What other fees are involved?

Your mortgage broker may ask you to pay additional fees if:

  • You want to borrow less than $200,000
  • You have a difficult financial situation
  • Your loan is for business or commercial purposes
  • You want to refinance or repay the loan within 24 months

Furthermore, some mortgage brokers operate using a direct fee structure. This involves you paying an upfront fee in return for receiving the commissions the broker would usually claim. However, such brokers are few and far between, as most find this structure is not financially viable.

If the broker does charge any upfront fees for their service, these should be detailed in the a Credit Quote.

At Customers First Mortgages & Insurance, we don’t charge our customers any fees for our service – so we’d encourage you to get the process started with us so we can help you.

What is an Australian Credit Licence?

A mortgage broker must hold or be covered by an Australian Credit Licence (ACL). Furthermore, they must provide all of the protections that the National Consumer Credit Protection Act 2001 outlines.

This prevents them from recommending unsuitable loan products that could damage your financial future.

You’ll also find that most lenders compete for your business using their home loan packages. As a result, commission rates don’t vary too much between lenders. This ensures your broker isn’t motivated by the possibility of a higher commission with a particular lender.

What to do next

Now you know about the fees, it’s time to start looking for a mortgage broker. At Customers First Mortgages & Insurance we don’t charge a fee for service when we help you find a loan. We also don’t charge any clawback fees. So if you’re concerned about broker fees, we’d love to help you.

This information is general in nature, and you should always seek professional advice when making financial decisions.

20 Questions to ask a Mortgage Broker

20 Questions to ask a Mortgage Broker

A good mortgage broker can help you to find a home loan that meets your needs. Conversely, bad ones may focus more on the commission they can earn, rather than finding the best deal for you.

You need to be able to separate the wheat from the chaff, which means you should enter any meeting with a mortgage broker with the right questions.

We’re going to look at 20 great questions as well as the answers you should expect to receive to each one.

At Customers First Mortgages & Insurance we are licensed as a mortgage broker, but we use technology to give our customers greater transparency and make it easy. You can find out more about what makes us different here.

Question #1 – How Much Experience do You Have?

This question will allow you to establish what the broker can do to help you. Don’t completely discount brokers with little experience, especially if they work for an organization that has a good reputation or have access to quality mentors.

Still, an experienced broker will possess more experience, which they can apply to your situation.

Question #2 – Do You Have a Credit Licence?

Some mortgage brokers have credit licenses, as their activities fall under those listed in the National Credit Code.

The rest should be credit representatives or employees of a licence holder. This means that they represent somebody who has a credit licence. It is illegal for a mortgage broker to operate without appropriate licensing so be very wary of any mortgage brokers who don’t have their own credit licences or aren’t representing somebody who does.

Question #3 – Why Should I Use a Broker?

This question can lead into a sales pitch, however there are a number of benefits that most brokers operating across a good panel of Lenders will be able to advise you on. Your aim is to sort through the salesy talk and get down to brass tacks of what suits your needs..

Your mortgage broker should explain the direct benefits of working with them. These benefits may include access to more home loan products and contacts within the industry, among others such as greater industry experience than offered by most Bank personnel as well as being prepared to meet you at your availability and location and also being available after hours when needed.

Question #4 – Are You a Member of a Professional Organisation?

Mortgage brokers (unless being a direct employee of an Australian Financial License holder) must maintain professional memberships as part of their licensing and professional indemnity insurance requirements. Those who do not, operate outside of the law and will not be able to provide you with the quality advice you are deserving of.

Look for membership of either the Mortgage & Finance Association of Australia (MFAA) or the Finance Brokers Association of Australia (FBAA). Both indicate that your broker meets some exacting professional standards.

Question #5 – How do You Choose the Right Loan for Me?

This question allows you to work out the broker’s process. Ideally, the broker will want to find out what you’re looking for so they can match a home loan to your needs and situation.

Be wary of any brokers who try to push products you don’t want. These brokers may be looking at the commission they’ll earn, rather than try to find the best product for you.

Do not be afraid to ask your broker the reasons behind any product recommendations they may be offering.

Question #6 – How Much is the Brokerage Fee?

Some brokers charge a fee for their services. It’s important to know what this fee may be before signing on the dotted line. Some will charge a flat fee, whereas others may ask for a percentage of the loan value. If this is the case, ask for a Credit Quote to get an indication of the fees that might be applicable.

Some may work solely for the commissions they receive from lenders.

At Customers First Mortgages & Insurance, we don’t impose any fees or charges for providing credit assistance to our customers.

Question #7 – How Many Lenders Do You Work With?

This is an important question because brokers who work with few lenders have limited scope for finding a home loan that best suits your needs.

Ideally, your broker will work with several prominent lenders and some speciality lenders. This will provide you with a greater choice. At Customers First Mortgages & Insurance we have over 25 lenders on our panel, so you can be confident in finding the right home loan for you.

Question #8 – What Commissions Do You Receive?

Clearly your mortgage broker is entitled to be paid a suitable amount for the professional advice and service that they provide. You need to be satisfied that such payment is not conflicting with the brokers recommendation or not being passed onto yourself in the cost of the product, so be direct in asking about the available commissions they receive from different lenders.

This will help you determine if the broker has any bias. After all, if they receive higher commissions from one lender than they do from the rest, they may try to push you towards that lender.

At Customers First Mortgages & Insurance we believe it is a better outcome to place you in the most suitable loan regardless of any small variation on commission levels available. Our aim is to match your needs with a suitable lender that best help achieve your goals and objectives. In doing so, we hope that you will be prepared to recommend us to family and friends, an opportunity that is far more valuable than what commission is paid by any particular lender.

Question #9 – What Deposit Do I Need?

This question will show how much thought the broker has put into your situation. There may be options that allow you to purchase a property with minimal deposit after taking advantage of available government grants and exemptions for first home buyers etc. This all depends on personal circumstances, of course.

The broker should take those circumstances into account and tell you about any products / offers that don’t need the same deposit as a standard home loan.

Question #10 – Will My Credit Card Limit Impact My Borrowing Power?

Did you know your credit card limit can have an effect on your ability to borrow? Your mortgage broker should be able to advise you if a reduction / cancellation of a credit card can increase your borrowing capacity.

Many lenders are wary of borrowers with high credit card limits. This may result in you receiving less money than you’d hoped for. Your broker should understand the impact your credit card limit may have on your ability to get a home loan.

Do not ever try to keep credit cards you hold a secret from your broker. Lenders will often be aware that you hold credit cards when they complete their mandatory credit checks. Keeping this information secret from your broker will not assist in achieving your home ownership goals.

Question #11 – What’s the Comparison Rate For?

All lenders must offer a comparison rate when advertising their home loan products. This rate combines several things, including the loan’s interest rate and any fees the lender attaches to the loan. It doesn’t include stamp duty and some external fees, such as those you’d pay to a solicitor.

Be wary of any broker who can’t explain what a comparison rate is and how it’s used.

Question #12 – What Fees Will I Pay?

Most loans incur additional costs and fees. Lenders may charge you for arranging the loan, in addition to various other fees. You may also need to pay stamp duty, government registration fees and solicitors fees.

Your mortgage broker should be able to offer a full rundown on every fee you’ll face when arranging a home loan.

Question #13 – What is Lenders Mortgage Insurance?

Lenders usually take out Lenders Mortgage Insurance (LMI) on home loans that exceed 80% of the property’s value. LMI protects the lender if the borrower defaults on the loan.

Your broker should explain what LMI is if it will affect you, and why lenders may apply it to a home loan product.

Question #14 – Can I Get the First Home Owner’s Grant?

The Australian government created the First Home Owner’s Grant (FHOG) to help first home buyers get onto the property ladder. It’s a one-off payment, with the amount you receive varying depending on different circumstances.

There are limits on the value of the home that can impact your eligibility, your broker should be able to explain your FHOG eligibility and how this might affect the home loan products you have access to.

Question #15 – Will a Default on My Credit Report Affect the Loan?

Lenders are naturally wary of defaults on a credit report, as they show the borrower has failed to pay a loan back in the past or has a history of late payments.

However, defaults don’t always prevent you from getting a loan. Advise your broker about any defaults you may have and what products they can provide access to.

A good broker should be able to provide you access to your credit file for a small fee. If in any doubt, ask your broker to obtain a copy of your credit report prior to proceeding with an application to a lender.

Question #16 – What Features Should My Home Loan Have?

Many loans offer more than the basic features because lenders want to attract as many customers as possible. These features may include things like a redraw facility, offset arrangements, or the option of making additional payments.

You should know which of these features apply to your circumstances. Your broker should make every effort to find a product that contains the features you want.

Question #17 – Can I Fix the Interest Rate Later?

You need to ask this question if you take out a variable rate loan and are concerned about any future rate increases in the short to medium term.

The ability to fix your rate for a period of time at a favourable level may prove useful in such circumstances.

Question #18 – What Information Do You Need From Me?

Ask your broker about the documentation needed to secure your home loan. This will usually include a couple of forms of ID, details about your income, and some other documents such as existing loan commitments, level of savings etc..

A good broker will provide a detailed list, as failure to produce the right documents will delay the process.

Question #19 – What Procedures Do I Need to Follow?

Every lender has different procedures that they want you to follow in order to secure your financing.

Your broker should know these procedures in detail, including anything specific to the lenders they work with. Again, this knowledge speeds up the process so you can secure your loan quicker.

Question #20 – How Long Will it All Take?

Ask your broker about the length of the home loan process, from initial application through to settlement. Also, ask about anything that may hold the process up.

The time frame can vary depending on weather you are a purchaser or looking to refinance with the same or a different lender. Your broker should be able to give you a good indication once all your supporting documents are available and you have selected your preferred lender of choice.

What to do next

Now you know the questions you need to ask, it’s time to start looking for a qualified mortgage broker. Here are a few steps to get you started:

● Find out what makes Customers First Mortgages & Insurance different
● Use our calculator to find out how much you need to borrow.
● Contact us by providing your name, phone and email details or simply phone 1300 275 532
● Visit our web site for more great information and tips that will assist your home ownership journey

This information is general in nature, and you should always seek professional advice when making financial decisions.

What is the ideal property type for your first home?

What is the ideal property type for your first home?

Getting ready to buy your first home is an exciting time. While saving for your deposit or wading through the intricacies of home loans can be a strain, it’s all worth it when you can finally start picking out your dream home. But with so many types of property on offer, what do you go for first?

We’ve run through some of Australia’s main housing types to help you decide what will work best for you.

Apartment
An increasingly popular property, particularly in growing cities and commercial hubs, apartment blocks combine stunning views with the convenience of inner city living. Close to offices and downtown attractions, high-rise living can save you time and money on transport and ensures you’re always within walking distance from the action. The smaller space can also get you a good location for a first-time buyer’s budget. An added bonus is the ability to buy your apartment off the plan, which could qualify you for substantial savings on stamp duty.

However, apartments do lack outdoor space and though many come with certain amenities like pools or communal gyms, they often have corporate fees attached to them. Car parking can also be a major expense, particularly in crowded cities like Sydney and Melbourne.
 
Townhouse

Townhouses or villas are usually two-story buildings located in complexes of fifty or more properties. They are often, though not always, owned by a strata manager and have onsite amenities such as gyms, tennis courts and pools. They are a great way to bag a good location alongside access to corporate maintained luxuries and are usually within the first home buyer budget.

However, like apartment blocks, amenities come with fees. For those wanting a secluded spot, these close-knit complexes may also not provide the privacy desired.

Detached house in an outer suburb
The traditional dream house of Australia offers a large modern home on a spacious estate. Plenty of backyard space for children or pets and with several bedrooms, bathrooms and a garage, you can get a lot for your money. Land also gives you the potential to extend in the future, so you can upgrade without moving.

There are some drawbacks, however. Suburban locations can be a significant distance from workplaces, particularly those in the inner city. Estates on the outskirts can also have limited access to public transport and local amenities, making a car another crucial expense.

If you’re looking for your first home and want some advice on the ideal home loan, speak to us today, or simply check out our calculators for some quick guidance.

Renovation tips – boost your house sale price

Renovation tips – boost your house sale price

Looking to sell your property this year but unsure how to get the best price? Here are some pre-sale renovation tips that are a great way to make sure your property is snapped up for a better market value.

So, what do you need to know to help maximise your investment without breaking the bank?

1. Don’t overspend
Renovations are like weddings, it’s easy to overspend. Always remember that the name of the game is to get a return on your renovation investment, so only do what is necessary. Leaving some room for the new owners to do their own redecoration isn’t a bad thing. Low-cost cleaning and repairs are a great way to get your property looking its best at a reasonable price.

2. Plan for your market
When renovating, it’s important to know your market and target home improvements accordingly. Families are typically seeking multiple bedrooms, plenty of living space with outdoor areas and room for storage. Older couples will look for single-floor living, accessible bathrooms, and modern conveniences like air conditioning and double glazing. Aligning your repairs with the needs of your market will help your property get off the market sooner.

3. Focus on bathrooms and kitchens
A good kitchen and spotless bathrooms can sell a house. Though rooms with less plumbing like bedrooms and living spaces are much cheaper to do up, neither will return your investment like flawless bathrooms and kitchens. High end shower fittings, easy to clean surfaces and a neutral, uncluttered pallet are major attractions for bathrooms. A similarly calm, inoffensive colour scheme is advised in the kitchen with plenty of storage space and modern appliances.

4. Don’t blindly follow trends
Trends are in every home décor magazine but avoiding trends more often than not gives you the best results. To get the right balance and aesthetically pleasing look you are better understanding the features of your unique property. For example, how can you work with the amount of natural light in certain rooms to make a more open feel and which colours suit the space in relation to fixed furnishings? By following trends, you risk distracting buyers from the unique characteristics your house has to offer.

For more information on how to maximise your property investments, talk to our team today, or simply check out our calculators for some quick guidance.

 

The questions you should ask before getting a home loan

The questions you should ask before getting a home loan

Getting a home loan can be a nerve wracking experience, particularly for first home buyers. The key to making the experience not just bearable but fruitful is to understand exactly what you are taking on.
Here are the questions you should know the answer to before getting your home loan.

Are you eligible for government assistance?
There are a variety of both state and federally funded concessions and grants for property buyers. Notably the First Home Owner Grant (FHOG) scheme introduced in 2000 can be a significant aid to first-time buyers.

What is the interest rate?
Your interest rate is offered to you by the lender and will be based on:
1. The loan amount
2. Your credit score

Along with the loan balance and term, your interest rate is what determines the amount you pay every month. If you are unhappy with the interest rate you are offered, you can try a different lender or alternatively improve your credit score to qualify you for lower interest rates.

How much can you afford to repay?
Loan repayment calculators are a great way to work out how much you need to pay and whether you want to do so monthly or fortnightly. Ask yourself whether you can afford to pay more than what has been allotted and how this would impact your overall financial plans. Make sure you understand exactly how much you will be paying every month and that you have considered insurance and taxes payments in your budgeting calculations.

Fixed or Variable rate loan?
Fixed-rate home loans give a consistent rate throughout their lifetime, which can be anything from 10-30 years. This has the advantage of giving you certainty over the amount you will repay and ensures you can plan ahead.

Variable rate loans have a changeable interest rate after a certain fixed period, allowing you to take advantage of any future reductions to interest rates. If you do take up this option, make sure that you understand how often the rates will change and which index the rate is tied to.

What is the minimum down payment?
Though most home loans require a 20 per cent down payment, different loan products can have varying requirements. If you are looking for help and guidance with your home loan, contact us today. or simply check out our calculators for some quick guides.

Tips for first-home buyers in 2018

Tips for first-home buyers in 2018

The Australian housing market hasn’t always been a friendly place for first time buyers. With property prices looking as if they may soften for the first time in over half a decade, 2018 could be the year to get a foot on the elusive property ladder.

So, what can you do to secure your place on the property ladder this year?

Get into the market ASAP
You can spend years plotting your triumphant break into the buying scene at just the right moment, but nothing can beat just digging in and getting started.

Most may be familiar with the saying “time in the market is always more important than timing the market”. Never is this truer than with first buyers. Sadly, there will be no ideal moment to appear in the property scene. Quality property in good areas will always rise in value over the long term and it’s best as a first-time buyer to get a foot on the ladder as soon as you can and settle in for a steady climb.

Affordable properties do exist
News surrounding the Australian property market focuses disproportionately on the big two: Sydney and Melbourne – home to some of the most inflated housing markets in the world. While these areas are convenient and home to 38 per cent of the country’s population, they are not the only places to buy property.

Smaller cities or towns outside the city boundaries provide a friendlier territory for those with a more moderate spending power. Cities like Brisbane can provide a steady economic growth in an up and coming area, but with deposits at $83,000, it’s a realistic aim for the first-time buyer.

Secure a deposit
Securing a deposit is the first major step to entering the market and often the most daunting one. Saving tens of thousands of dollars is an intimidating task, particularly while still paying rent and other day to day expenses. Here are a few things to bear in mind when preparing your deposit:

  • Always clear your debts first. There is nothing more disheartening than seeing all your savings drain away into the debts you have already racked up. One thing at a time – get those debts under control first.
  • Take advantage of the government’s First Home Super Saver Scheme. This can help you minimise the tax you pay on your savings so more goes into securing your first home.
  • Ask your family to help out. Getting a loan from the bank of Mum and Dad, if possible, can be a great way to help boost you in the final stretch.

Make the most of low interest rates
One of the advantages of making the property leap this year is that interest rates are still relatively low. This paves the way for great deals on your home loan. If you’re ready to purchase your first home in 2018, contact us today, or simply check out our calculators for some quick guides.

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