A Mortgage Broker is an intermediary between the borrower and the lender who uses their knowledge and software to source competitive rates and facilitate a smooth process to settlement.
The Mortgage Broker acts in the borrower’s best interests at all times and is their mortgage project manager, handling all the steps in the process and reporting back to the borrower at the various stages.
There are a wide range of mortgage products out there and it can be confusing to try and compare them all.
A Mortgage Broker will help navigate through the options by explaining the differences between products and help the borrower choose a loan that suits their specific needs.
Once a product is chosen, a Mortgage Broker will make sure things happen on time and the borrower is fully informed every step of the way.
No, EZ Financing do not charge a fee for our mortgage broking and home loan service. We receive commissions from the banks as outlined above.
In Australia, mortgage brokers are paid an upfront commission when your loan settles. The commission is calculated based on the size of your home loan but it also takes into consideration how much you actually draw down and whether you have any funds in your offset account.
A finance broker will also receive a trailing commission. This is a smaller commission paid to your broker each year you keep your loan with the bank. The trailing commission is calculated based on what the loan balance is. Once the loan is paid out, if it goes into arrears or defaults, or is refinanced to another lender, this trailing commission ends.
Commissions can differ from bank to bank, however most of the major banks and bigger lenders now pay all finance brokers the same commission rate.
Since the Royal Commission in 2017 and 2018 a plethora of changes came into place around standard commission rates and the removal of incentives and rewards programs. This makes it fairer for brokers and their clients and helps to remove potential conflict of interests.
Commissions paid to brokers are typically:
If you refinance or pay out your loan within the first 2-3 years, the mortgage broker will have to pay back part or all of the commissions they were paid.
No, in fact you may actually find you pay a higher rate if you go direct to the bank. One of the key things a broker does is negotiate on your behalf and arrange special discounted rates for their clients.
Not necessarily. A good broker is acting in your best interests and wants you to be with them for a long time. The banks are paying the broker a fee for bringing new clients to them, as the broker is performing the role of an employee in the branch.
A licensed, qualified and professional broker will be making recommendations that suit your needs. No matter which bank they send you to, it must be one who is appropriate for you. Your broker should provide several options to you with their recommendations, can discuss with the broker why they’ve made these recommendations and you have the final say on which lender you choose to proceed with.
EZ Financing doesn’t forget you after your loan has settled. We are paid an ongoing trailing commission by the lender you chose to continue to be there for you to answer any questions and perform modifications to your loan such as fixing or switching products.
Each year your broker will also review your loan to make sure it still suits your needs. We will also compare it with those on offer from other institutions and negotiate with your current lender for you, to see if we can secure a better rate from them for you.
Costs of buying a home:
o Lenders Mortgage Insurance
o Legal and conveyancing fees
o Building and pest inspections
o Stamp duty
o Home loan fees
o Buyers agent
o Removalist costs
o Council rates
o Strata and body corporate
o Regular maintenance and repairs
o Home and contents insurance
EZ Financing recommends seeking the advice of a suitable industry professional when it comes to tax matters but your Mortgage Broker can provide a basic explanation of the elements that pertain specifically to your Investment Property Loan.
Basically, Negative Gearing is when the rent does not cover the deductible property outgoings such as mortgage interest, agent fees etc. The loss incurred at the end of the year may be tax deductible, subject to the advice of an accountant.
Positive gearing is simply when the rental income received more than covers all the deductible property expenses. You would have a surplus at the end of the financial year, which may be taxable, once again, subject to the advice of an accountant.
A pre-approval is confirmation from the lender they are happy with the scenario your broker has prepared and submitted, providing their conditions are met. There may be specific conditions requested but there are some that are standard as follows:
A pre-approval usually lasts for 90 days, at which time your broker will be in touch to renew, if you haven’t made a purchase by that time.
When you sign a contract to buy, your broker converts the pre-approval to full approval.
They will collect a copy of the fully signed contract and sent to the lender. A valuation is often ordered.
Once the valuation is accepted and all other conditions are met, the lender issues an unconditional approval and a formal loan offer for signing. Another appointment is scheduled so that your broker can fully explain the loan offer, and you can sign it.
Within 3 or 4 days of receipt of the signed loan offer, the lender moves your file to their settlements area who liaises directly with your conveyancer to book a settlement time on the agreed day.
Within 3 or 4 days of receipt of the signed loan offer, the lender moves your file to the area of their settlement who liaises directly with your conveyancer to book a settlement time on the agreed day.
A week or so before settlement, your conveyancer calculates the precise amount of council rates / water rates and lets you know the exact shortfall you need to contribute by way of a bank cheque or transfer from your account.
On settlement day the conveyancer liaises with the lender on your behalf and arranges to transfer ownership of the property into your name. All you have to do is collect the keys from the agent!
We recommend the use of a Conveyancer because they specialise in property, that is all they do so they can fully focus on your property purchase to ensure the process is smooth. The Conveyancer will perform all the necessary property checks and handle the actual settlement for you.
Mortgage insurance is usually required when a lender provides a loan that covers more than 80% of the purchase price or valuation, whichever is the lower. It is designed to cover the lender for their risk and protects them in the event that the property needs to be sold. If the lender suffers a loss on the sale, they claim payment from the mortgage insurance company.
The insurer then pursues the borrower for the amount they paid the lender. The insurance offers the borrower no protection whatsoever and is a once off charge which can be added to the loan amount in certain circumstances. The price of the premium depends on the loan to value ratio of the property purchased.
A parent* is able to help their children avoid the cost of lenders’ mortgage insurance by offering a portion of their home equity to reduce the risk for the lender. The standard comfort zone is where your loan does not exceed 80% of the property value so your deposit is combined with equity in the parent’s home or investment property (your broker will explain how it all works!).
*Mum and Dad must seek independent legal advice to have their rights and responsibilities as guarantors explained to them fully. .
An offset account is a separate account to your home loan.
• The 100% offset loan is a common home loan feature that allows you to pay off your home sooner.
• This feature works by linking your loan to an account that you use every day, such as your saving account.
• The balance of your savings account then reduces or
offsets against your home loan.
• Reduces the amount of interest you pay on your home loan.
• Helps you to pay off your home faster.
• Encourages you to build up a nest egg or a buffer, so you avoid mortgage stress.
• Creates good savings and money management habits
You are charged interest on the difference between cash in the offset and what’s owing on your home loan.
Any extra cash paid onto the home loan reduces the balance & interest is charged on the amount owing only.
A redraw facility is a home loan feature that allows you to withdraw extra repayments that you have made on your loan. These extra repayments accumulate separately to your normal repayments, which allows for withdrawal.
Basic Home Loan:
- is the no-frills product offered by most lenders with minimal extras (no offset account or a credit card). Different banks will use different names to describe these loans but the concept remains the same. You can choose either a variable rate or a fixed rate.
- You have an option to contribute extra money into your loan (restrictions apply if your loan is fixed). This becomes your redraw and you can withdraw the extra money contributed from your loan at any time. Some banks may have minimum withdrawal limits and may charge a fee. Internet transactions are usually free.
Redraw is a feature of a home loan.
- Any extra cash paid onto the home loan reduces the balance & interest is charged on the amount owing only.
- A redraw facility is a home loan feature that allows you to withdraw extra repayments that you have made on your loan. These extra repayments accumulate separately to your normal repayments, which allows for withdrawal.Add an answer to this item.
A variable rate loan is a loan where the interest rate you are charged can fluctuate at any time as interest rates change. These rates can rise or fall in accordance with the Reserve Bank of Australia cash rate changes as well as a number of other factors. Recently some lenders have increased their rates due to a rise in their funding costs (simply, the cost of borrowing money).
Most lenders offer a standard or basic variable loan. Standard variable loans offer the flexibility of a variable loan as well as additional features such as offset accounts, redraw facilities and the option to split the loan. While a basic variable loan offers a variable rate, without the extra features of the standard variable rate loan, meaning it can be a cheaper alternative.
PROS OF A VARIABLE RATE
• If interest rates fall you’ll pay less. This can save you money on not only your monthly repayments, but over
the term of your loan as well.
• The flexibility to make extra repayments. If utilised, this can help you pay off your home loan quicker and
minimises the total amount of interest paid over the term of the loan.
• You can reduce the amount of interest you pay by taking advantage of the redraw and offset account features of the loan.
• Less hassle switching loans. Depending on your lender, variable rate loans typically do not have break or exit fees.
CONS OF A VARIABLE RATE
• If interest rates rise, your repayments will increase.
• Unpredictability of monthly repayments - this can make it hard for borrowers to budget.
• Potential for mortgage stress - when choosing a variable rate home loan, ensure you are able to make monthly repayments if your interest rate increases.
Fixed rate home loans are exactly that, a loan with an interest rate that is fixed and does not fluctuate. This fixed rate means your repayments will stay the same on your home loan for the term of your fixed-rate period. A fixed rate period can last between 1 and 5 years, depending on your lender. After your fixed period ends, it will typically switch to a variable rate loan.
PROS OF A FIXED RATE
• Predictable repayments. This makes budgeting your finances a lot easier since you can be confident in how much you’ll pay each month.
• If the interest rates rise, you will not be affected.
• Less hassle switching loans. Depending on your lender,
variable rate loans typically do not have break or exit fees.
CONS OF A FIXED RATE
• If interest rates drop, you will not pay less.
• Break or exit fees apply if you wish to change or refinance your loan with your contracted period.
• Generally extra repayments cannot be made, or if they can, they will incur a fee.
• No access to redraw facilities or offset accountsAdd an answer to this item.
Ez Financing
Disclaimer:
Your full financial situation will need to be reviewed prior to acceptance of any offer or product.
Thuy Hook is an Authorised Credit Representative (no. 456333) of BLSSA Pty Ltd, ACN number: 117 651 760 Australian Credit License number 391237
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