How do I choose the best mortgage broker in Sydney?

The answer to the question of ‘how to find the best mortgage broker in Sydney‘ or elsewhere is trickier than one might expect.

Perhaps the biggest financial decision you'll ever make is picking a mortgage. There are many types of mortgages available, each with its own set of loan terms. An experienced mortgage broker can help you navigate through this maze of choices to find the loan that is most suitable to your needs.

Broking, however, is a controversial industry. Some inquiries into the industry have made clear about the problems that exist here, like - brokers pushing borrowers into loans that are bigger, riskier, and take longer to pay off, and brokers never finding any loans cheaper than what you may get from a direct lender.

When choosing a mortgage broker, it is crucial that you make sure they are honest and professional. You cannot evaluate a mortgage broker based on their settlement volume alone, nor their reviews or experience, but you can combine the three factors to get a list of potentially good brokers.

What should you do next? If you do plan to utilize a mortgage broker, follow these tips on how to find a good mortgage broker. Here, we summarize seven key features to look for.

• Do some homework.

Be prepared before you begin your search for a broker. Have a look online for potential loans and get a good idea of what type of loan you want. This way you'll be better prepared to evaluate the broker's recommendations.
Then talk to several mortgage brokers to compare their offers. Make use of our list of key features to assess a mortgage broker's offers and service.

Brokers are not bound to give you the 'best' or even 'highest-quality' loan. Legally, they only have to provide a 'not unsuitable' loan. So it is important that you ensure to scrutinise their recommendations. 

Also, keep in mind that brokers don't always find borrowers lower interest rates or cheaper loans. If a bank offers a better quote than your mortgage broker, consider dealing directly with the bank. 

• Knowing how they get paid is important.
  Brokers usually get paid commissions directly from the banks rather than charging you for their services. Such a scenario may have the potential to decrease the quality of advice that a broker may provide to their clients. There are two kinds of commissions the broker receives: 

1. Upfront Commission - This is calculated as a percentage of the total loan amount, so the bigger the loan, the bigger the commission for the broker. So be careful with a broker who suggests a larger loan than you budgeted for. 
2. Trail Commission - This is a percentage of the mortgage the broker continues to receive throughout the term of the loan. The trouble with trail commissions is that brokers have no obligation to provide any help during the life of the loan, and the less ongoing work brokers do, the better – they get paid for doing nothing. 

• Check educational qualifications, experience and professionalism of the broker.

As an initial step, make sure the broker is licensed to provide loans. They need to have their own Current Australian Credit Licence or qualify as an Authorised Credit Representative. 

Inquire your mortgage broker about the qualifications and experience they have. While mortgage brokers only need to have a Certificate IV in Finance and Mortgage Broking to start working and financial advisers have to complete minimum education standards including a university degree.

You may want to look for brokers with higher qualifications such as the Mortgage & Finance Association of Australia (MFAA, a professional body for brokers) members who have diplomas and some other degrees in finance, economics, or accounting.

• Check if the broker is working in your best interest.
  Try to choose a broker who will receive the same commission rate no matter which lender you choose or what product you choose. This way you may know the broker is recommending the best-suited product to your needs and not the one best-suited to the highest commission. A quality broker will be open about how they are paid and will also let you know whether they receive a referral fee for introducing you as a potential client.

If you feel a broker is urging you to borrow more than you need or are comfortable with, then you may want to go elsewhere for your loan.

• Ask them about their lender panel.

Brokers are restricted to the banks that they can access – a list known as the "lender panel". A good broker will have a wide range of lenders on their panel and will regularly draw from it depending on the borrower's circumstances, as opposed to brokers who only offer loans from their panel.
If a broker has only a few lenders on their panel, they might be focusing on a small variety of lenders and might limit your options. 

But the amount of lenders on a broker's panel isn't everything; the broker's use of the wide range is also important. While brokers claim to scan the market, most of them direct mortgages to a small group of banks. On an average, brokers tend to send 80% of their loans to just four banks.

Therefore, ask your broker what the top 10 banks are their lenders, and what percentage of loans they send to them. This will tell you if the broker is really scanning the market. A good broker will provide you with this information easily.

• See if your broker offers clear loan choices and explains your options clearly.
  There are a variety of loan types available in the market. An experienced broker will present you with a number of options and clearly explain why a particular loan is recommended.

Be particularly cautious of brokers who try to sell you risky interest-only loans. Over the first few years, these types of loans have a cheaper repayment, but that's because you're only paying interest and not the loan amount itself. After the interest-only period ends, typically after five years, you will end up facing with much higher repayment amounts.

Additionally, a good broker will not pressure you into buying a loan. You should stay clear from a broker who tries to convince you to sign anything before you've received enough information about your options. 

• Get a written copy of the Credit Guide and Credit Assessment.
  Credit assessment
  Credit assessment contain your income and expenses along with your financial objectives and expectations accessed by your broker. The broker has a legal obligation to observe responsible lending laws and should not offer you an inappropriate or risky loan. Make sure to request a copy of credit assessment which brokers only have to provide if you ask them. 

It's a good idea to double check the document you gave the broker so that your explanation matches up with the written assessment.

Credit guide

Credit guide is the document which provides the broker’s contact details and a record of the commission that the broker will get if you go ahead with the loan. This is a legal requirement. Make sure the broker gives you it. The credit guide also has information on who to contact for problems or complaints with the broker. 

Mortgages aren't something to set and forget. Taking the time to shop for a loan that suits your needs can pay real benefits. It has been found that renegotiating interest rates with your lender can help you save up to $850 a year for an average-sized loan, and even more for some borrowers. By switching banks, you can save tens of thousands of dollars over the lifetime of your loan.