I have been investing in property for almost twenty years, and for the last ten years I have used a mortgage broker to assist with new loan applications, refinancing my existing loans, and reviewing my ongoing financing strategies and structures. In hindsight, I wished I had used a mortgage broker from the beginning as they have consistently saved me time and money. In this article I outline the reasons why I think you should consider using a mortgage broker too.
- What do mortgage brokers do?
- Advantages of using a mortgage broker
- Choosing a mortgage broker
At the end of the article, I also have a special offer for readers of The Australian Expat Investor.
What Do Mortgage Brokers Do?
The role of the mortgage broker is to identify whether or not you will qualify for a loan, determine how much the banks will lend you, recommend which bank will offer you the best product given your requirements, and negotiate with the bank to get the best deal for you.
Mortgage brokers are normally free to use. They work with up to 20 – 30 different lenders and are paid a commission by the chosen lender when your loan is drawn down or approved.
A mortgage broker will request all your financial particulars that go into any loan application, and assess your credit worthiness. They will seek to understand your needs in terms of the type of loan you require (eg. flexibility to repay early, fixed repayments, inclusion of an offset account etc), and then discuss with you the different options available to you. Once your broker has determined that you are eligible for a loan they will manage the loan application on your behalf all the way through to drawing down your loan or settlement of a property purchase.
Advantages of Using a Mortgage Broker
Protect Your Credit Rating
Too many loan applications or declined loan applications may impair your credit rating. Australian Expats automatically fit in the “non-standard borrower” category and the lending criteria for Australian Expats at some banks will be very different than when you were living in Australia. By using a mortgage broker (that understands loan applications for Australian Expats) you can avoid having to make multiple loan applications, and only making a loan application that the mortgage broker knows will be approved.
Access to Many Different Loan Options
One of the biggest advantages of using a mortgage broker is that they usually have access to loan products from around 20-30 different lenders. Rather than you needing to contact 20 different lenders yourself and understand their different products, interest rates, lending requirements etc, the mortgage broker will do it for you. You are then able to discuss the pros and cons of the different lending products and banks with your mortgage broker to identify the product that best meets your needs.
Knowledge of Lending Criteria
Mortgage brokers have access to the lending criteria of each bank, and will generally be able to give you confident advice as to how a particular bank will perceive your loan application. As a result you can ensure you only apply for a loan from a bank where you are confident you meet their lending criteria. The lending criteria for Australian expats can vary markedly between lenders, so when choosing a mortgage broker be sure to choose one that specialises in loans for Australian expats (see section below on Choosing a Mortgage Broker).
Knowledge of Unpublished Discounts
The standard variable interest rates that the banks publish on their websites are simply a benchmark interest rate. However what is not obvious is how to get a discount to this interest rate, and what discount to the standard variable interest rate is achievable. If you are not “in the know”, and you asked your friendly bank manager for a discount, you may be offered say a 0.50%pa discount to the standard variable interest rate. Your mortgage broker, however, may know that this bank offers discounts up to 1.0%pa and can seek to negotiate that deal for you.
Free to Use
As the banks pay the mortgage broker they will generally not charge for their services, and with the other advantages mentioned in this article, you can only gain from using the services of a mortgage broker.
Familiar with the Lending Process
If you do not have much experience in obtaining finance the whole process can be quite daunting. You need to sign dozens of pages of documents, sometimes in duplicate. The terms and conditions of the loans can be confusing if you are not familiar with the industry jargon or a lawyer. And you are never quite sure what the next step in the process is. An experienced mortgage broker will have managed hundreds of loan applications before. They can help answer any questions you have regarding your loan documentation or the process that will be followed.
Building a Long Term Relationship with One Person For Your Finances
With banks changing their lending criteria and interest rates all the time it is quite likely that at some point you will transfer your loans from one bank to another. If your lending relationship is with a bank loan officer or bank relationship manager, when you move banks you will need to re-establish a relationship with someone at the new bank (and there is always the risk that your new loans officer or relationship manager might not be as helpful as your previous one). Having a mortgage broker solves this problem. Once you develop a relationship with a mortgage broker that you are comfortable with, you can maintain continuity with your financing support over time as you move your loans from one bank to another.
In addition, as you build your property investment portfolio you may find you end up having your loans spread across a number of lenders. A mortgage broker is able to take a more holistic view of your investing and lending requirements to ensure the package of loans across the banks is the most suitable arrangement for you.
Choosing a Mortgage Broker
As in any industry there are different levels of competency and experience in the mortgage broking industry. Mortgage brokers may also specialise in different types of loans (eg. building loans, expat loans etc).
Lending to Australian Expats is more complicated than lending to a typical “mum and dad” borrower based in Australia, so the first thing you want to understand is what their experience is in obtaining loans for Australian Expats.
- Do they understand the policies of the different lenders when it comes to expats?
- Do they know how much your foreign income will be discounted (to account for foreign exchange fluctuations and higher risk) in your loan evaluation?
- Do they know if the lending limits (or loan to value ratios) are lower for Australian Expats?
- Do they understand the unique issues that arise for Australian Expats when taking out a mortgage? For example, getting documents witnessed when living abroad.
- Are they willing to communicate with you primarily via email and skype phone calls?
One of the biggest advantages to using a mortgage broker is that they should understand the lending criteria of the major banks. If your mortgage broker does not specialise in Australian Expats their ability to provide you good advice and a smooth approval process will be limited. Your mortgage broker should be able to tell you whether there is any risk in your loan application not being approved. If your mortgage broker advises that you will not meet the lending criteria of a particular bank it will save you the effort of having to make multiple applications, but more importantly it avoids having a black mark on your credit record from a rejected loan application.
Special Offer : 30 Minute FREE Expat Loan Strategy Session
I have made a special arrangement for readers of The Australian Expat Investor with my own personal mortgage broker. Craig Vaughan is the founder and CEO of MAP Home Loans with offices in Sydney, Melbourne and Brisbane. Craig is a highly experienced mortgage broker who specialises in home loans for Australian Expats, and understands the issues Australian Expats face when wanting to finance a property purchase in Australia or refinance their existing loans while living abroad.
As the CEO of MAP Home Loans, Craig usually only works with his existing clients but has agreed to also work with readers of The Australian Expat Investor. By completing the form below, Craig will provide you a free, no obligation 30 minute telephone or skype discussion to review your finance requirements.
Disclaimer : This information is for educational purposes only and does not constitute financial or taxation advice. As this information is not advice and has been prepared without taking into account your objectives, financial situation or needs you should, before acting on this information, consider its appropriateness for your circumstances. Independent advice should be obtained from an Australian financial services licensee before making investment decisions, and a registered (tax) financial advisor/accountant in relation to taxation decisions. To the extent permitted by law, we exclude all liability for any loss or damage arising in any way.