are mortgage brokers the best option ?

are mortgage brokers the best option ?

Yes!

 

I have seen a range of creative finance options out there, and the more creative ones usually make more money in the form of a book than in real life. I have seen banks restrict so many investors I am a firm believer in a good broker allowing you to go further and purchase multiple properties - which is my biggest goal when it comes to finance. The regulars on this forum are in my experience some of the best in the country. The ones such as Jamie M and Peter T and Rolf (sorry to the others I know you deserve a mention too) truly understand the needs of the investor who owns 4-40 properties (this is the top 1% of investors). If that is where you want to go you really should have the right team. If you just want 1 property it doesn't really matter so much.

 

Having used Mortgage Choice before, I'd say it depends completely on the branch. My Mortgage Choice broker was the owner of his franchise and he did a decent job for me for my first IP, then my next IP with my business partner. His service was good and he was quick to get back to me when I emailed him or called him, but from what I can tell, they're all different franchises and as such, you'd need to choose who you go with.

There are some awesome brokers on this forum though, so maybe PM them with your details and try them? I've found an awesome one from this forum who will most likely be my broker very shortly

So do I think brokers are the best option? YES.

 

I see these cashback brokers in a slightly different light, I pay good money for what I get and if the product is what I am expecting I don't need cash back. I view it as a business who is trying to buy business where as a good brokers results should speak for themselves and not need to offer little sweeties to get your business. I used a broker for our PPOR purchase and we had litteraly NO idea what was involved, he walked us through the ENTIRE process, he helped me find all the people I needed, he delivered printed off forms for me and walked me through what to fill out and where to sign, all up I think he came to our house about 5 times through the process he was completely at our beck and call (maybe he just liked the cups of tea my wife kept making him ).

One Sunday we were out in the city and we had to get some forms to him (which fortunately we had in the car) he lived between us and the city so he just gave me his address so we could stop in on our way home.

I didn't need cash back from him because in my opinion his service was exceptional. I got a call from him at 1 month, 3 months, 6 months, 1 year, 3 years and 5 years post purchase to check in on us, see how we were going, make sure the mortgage was still the right choice for us and to offer further service should we need anything. Whilst I know this is also good for him in case we are looking for further finance assistance, it did leave me feeling very happy with him.

Having said that though now I would probably choose someone from this forum to help me structure everything for IP1. I doubt if this guy is still working, he was pretty well aged when he helped us out.

 

Whilst trail is fairly significant...I don't think it should be your focus. Trail amounts are around 0.15% p.a. as per the table below:
Source: http://bluefoxfinance.com.au/how-does-a-mortgage-broker-get-paid/

Can I suggest a different approach to saving money? If you pay a fee in exchange for the trail, you will be locked in to that loan and any interest rate changes for the full term (or forced to pay another fee for a broker). Why not instead look for the lowest interest rate every one to two years and refinance where necessary? I am sure you could save more than 0.15% p.a. by swapping to the lowest interest rate every so often.

Hope this makes sense.

 

The brokers proposition is experience, guidance and service. If you want the best rate google can sort that out for you.

In saying that, if you get a loan direct from a branch, they won't give you a "discounted" rate because they're not paying your broker. You'll pay the same (or higher).

Although the trail commission is paid monthly and is a percentage of your loan, it's not coming out of your pocket. If the bank weren't paying your broker they'd be paying a salary to your bank manager, likely with a commission component based upon your home loan as well and you'd still have exactly the same rate (or higher).

 

Whose pocket does it come from?

Are you saying banks don't give direct customer discounted rate because they don't have to pay broker?
hell of a business model

 

If you go directly to a bank, the bank has costs involved with that sales channel. I assume they have to pay things like salary, super, rent, administrative support, marketing and about 1000 other things to have a branch available for customers to visit.

Certainly many of those costs are already there because the branches are open anyway, but if brokers didn't exist, the banks would need a lot more branches to service customers. Most lenders are currently closing or consolidating branches and have been doing this for decades.

Of course a brokers trail is paid from the consumers pocket. If you don't use a broker, this goes to the costs the sales channel that you do choose to utilise. There's been multiple arguments about which sales channel is more profitable for the bank but nobody can claim to be unbias in this. Either way the cost to the consumer is generally the same.

 

The broker gets an average upfront rate of 0.633% on the value of the mortgages it organises. Then it gets an average trailing commission of 0.193% on the value of the home loan each year for five years if the mortgage remains in place.

Read more at CHART: Here's What Banks Pay Mortgage Brokers To Get Your Home Loan

so does it mean, On a one million loan,
Bankwest pays a broker a total of
1mn *(0.633 + 5 * 0.193 )/100 = 15,980$ in upfront and trailing commission.

does it mean bankwest pays a total commission of 16k apprx on 1mn loan to broker over five years?

so that's a 1.598% of loan amount paid in commission to broker

 

hmn..
Is that the reason online services like loans.com are cheap?

 

Brokers often forget the amount of time the branches spend servicing their clients.

It's nearly once a week the branch is completing a sign up for a broker client.
That's not even touching on the amount of maintenance that's completed by the branch for broker clients.

Would be so hard to define the cost of each channel, but one thing I'm sure of is that a broker has never completed a sign up for me or assisted my clients with some maintenance.

 

If banks use brokers to save their staff cost, they should stop providing direct customer loans altogether and reduce staff.

 

damn this segment is so ripe for technological automation.

 

I don't believe brokers save costs.

This is coming - I see it with every update.

 

Actually I've done a heap of maintenance work for peoples loans that were originated through branches, quite often the CBA. Other than future good will with the clients, I usually don't get paid a cent for this, not upfront or trail.


I'm not going to suggest either broker or branches are a cheaper sales channel, but both have their value to borrowers and both have their costs.

Automation is a growing segment of the industry. At this point it only works with very straight forward lending and doesn't address the 'advice' component of lending very well.

 

And how much do you think the bank makes on that $1M loan over 5 years? A lot more than the broker I can assure you. Net interest margin for CBA was 2.11% as per yesterdays profit announcement. So for every $ 1mil lent out they make $21K pa so over 5 years that's about $105,000 PROFIT and this is after the commission have been paid to a broker if it was a broker introduced loan!

Now onto your $16K figure. Bankwest actually doesn't pay trail in year 1 but regardless let's not get caught up in semantics. What you are missing is that figure quoted is gross business turnover and not PROFIT. Things you're missing

* Brokers have costs to run their business! Commissions are not pure profit.
* Loans are often repaid in the first 2-3 years. Refinanced / sold etc. Commissions are also clawed back if repaid in years 0 - 1.5/2.
* Pre approvals that don't convert / loans in general that don't settle / loans declined = $0.
* Scenarios and general number crunching that doesn't lead to a transaction = $0 for my time and expertise and about 25% of my time.
* Post settlement stuff (at least 35% of my time) = $0 actual increased income.

I'm not saying it can't be lucrative but its not "easy money" like you have assumed.

 

Completely agree - we have a new servicing model active Monday I believe. I've already ran through it.

It's extremely user friendly, whilst I would like to think it was designed to be simpler for staff... I would expect it's for ease for automation going forward.
Very simple for a vanilla first home purchase PAYG income minimal debt, but when things start getting a bit more complex where the 'advise' component you touch on, this area will still see human involvement in some form.

 

Honestly I think its really hard to measure as branches, branch staff and all the guff that goes with that is sitting there as a cost base. One more loan a week has very little nominal cost to produce but they have the significant fixed cost.

I did notice in yesterdays CBA figures that as expected branch introduced loans increased significantly as compared to broker introduced loans. I also noticed that the bank had what they call negative jaws which means cost growth was outstripping income growth. You could extrapolate that to mean increased investment in the branch network has caused costs to exceed income growth which wasn't happening when the broker introduced loans were higher. Or maybe its one off costs to gear up the branch land? Do you think even CBA management / their board knows? I doubt it.

 

It's often assumed to be easy money, which is why you see so many enter.
But it's clearly not by the dropout rate.
A good broker is completely worth what they're paid and should be no regard for the client.