Hi all, When using a mortgage broker, how do you know if he is working in your best interest to get you the best deal with good rates? Since he is paid commission by the bank, isn't it likely he will make recommendation base on what the bank pays him? so why use the broker?
You could ask for a document showing how much each bank pays, a couple of times in the past five years I have given that to a client. They both were surprised that the commission rates were almost identical and wondered what all the hype was about...
The notion that brokers try to push clients towards lenders that pay a higher commission is largely a myth. Most brokers are just trying to get your deal over the line in the best possible way and probably aren't even thinking about their commission.
Almost all lenders pay upfront commissions between 0.5% to 0.6% plus GST. Trail is generally 0.15%. This generally includes 2nd and most 3rd tier lenders. I know of private funders that do pay significantly more, but one look at their rates and fees and clients are going to want an explanation for that recommendation. Some banks would rather you didn't deal with brokers and come to them directly instead. Thus they tend to perpetuate the idea that brokers only recommend the best paying commission. That's simply not true. The truth is I (and most brokers I believe) don't even look at the commissions. The simple fact is that if brokers to do the wrong thing by clients sooner or later they'd figure it out. That means no repeat business, no referrals. Most mortgage brokers rely heavily on word of mouth. On a forum like this it means you're name is mud (that happened to at least one broker on the old Somersoft forum). Good brokers know that putting their clients interests first makes good business sense.
One area where a broker or a lending manager may not always act in the clients best interest may relate to how much is borrowed. Their remuneration is tied to the borrowing so a conflict of interest could occur if they encourage more than you want or need. Many lenders cater for this by paying fees based on the net borrowing by reducing any $$$ in a offset. So its fairly well self-regulated in most instances. This issue was noted as a reason to consider a remuneration model that wasnt a % of the loan amount but was a flat "fee" in the recent govt review. I dont think I have ever encountered a person with a concern about this. That said the local bank lending manager is likely to be as conflicted as its his job to lend more.
It means brokers no longer get paid for equity releases. IMO the 'net of offset & redraw' policy is actually more likely to lead to brokers recommending cross collateralisation or neglecting to set up offset accounts properly just so we can get paid fairly. The only good thing about this is most lenders will review the loan balance 12 months later and pay the difference. That should start to flow through in the next month or two (this policy is less than 12 months old at this point).
Do you think the bank is working in your best interest? Over the last 10 years dealing direct with the bank has cost me about $26,000 due to the lack of independent advice. That's not on interest, that's just fixing stuff ups in structuring. It's no wonder banks dont like you dealing with mortgage brokers. Willy
With a broker you have a choice rather than just one manager if you are growing or accumulating your portfolio. It is also a relationship with the broker as your loans will continue for quite few years on so if they are dishonest in their business sooner or later they will not suffice. It is not all about the interest, to me in my situation I prefer one which understands structures, no cross collaterisation, portability or flexibility of loans. Also where no guarantees are sought against my trusts or businesses. Preferably a broker who also also invests helps. You can always ask them to be transparent and disclose their fees on various scenarios you can suggest. So personally I will use a broker every time. I have made 3 changes in my time until I found one who works with me rather than against me. I usually turn up at his house to sign all documents and actually have never even been to his office suite. As with any people in business, we forget that businesses or organisation are really people dealing with each other. So find someone through recommendation, be honest, ask lots of questions and see if you can form some kind of relationship and trust.