If you’re looking to buy property, finance is an important consideration.
When it comes to arranging a home or investment property loan you have two basic options: go it alone or use the services of a mortgage/finance broker:
Let’s look at the pros and cons of using a broker.
A Finance Broker can save you time and hassle
There’s a huge range of home and investment property loan products on the market from many different providers. It can be time-consuming to research what’s available. Good brokers are across all this information because they arrange loans for a living. They can help you to find the best loan for your individual circumstances.
Help you with your loan application process
Different lenders have different lending criteria. For example, some will be prepared to lend you money for a home or investment property loan if you have a low deposit, while other won’t.
A good broker will be able to assess your situation and recommend the lender who will be most likely to approve your application for a loan with the best possible terms, conditions and features. It’s important to understand that any rejected loan applications can harm your credit rating.
Negotiate with lenders on your behalf
There’s an old saying that ‘you don’t get what you deserve, you get what you negotiate’. It can certainly apply to finance. Good brokers are experienced negotiators and they may be able to negotiate a better deal for you with a lender than you can negotiate yourself. For example, lower fees or a lower interest rate.
Fees and commissions
Brokers may charge you a fee for their services. If they don’t, they will be receiving commissions from lenders whose products that they recommend. These commissions may influence their loan product recommendations.
The recent Financial Services Royal Commission recommended that broker commissions be banned in favour of upfront fees to allow for greater transparency. However, this recommendation has not been implemented by the federal government.
Not every Finance Broker is good at their job
For example, some may not take the time or have the necessary experience and knowledge to recommend the best loan for your needs.
It’s important to choose a broker wisely. Look for one who can provide plenty of excellent reviews and referrals from satisfied home or investment property loan borrowers.
The bottom line – Finance Broker or Solo?
Whether you decide to use the services of a broker or not, it’s vital to arrange a home or investment property loan with the best possible terms, conditions and features. Mortgages are usually large, long-term financial commitments. It’s important to understand that even a small difference in loan terms, conditions and features can make a big difference to your repayments over the life a loan.
For example, lenders typically advertise two interest rates on their products: the nominal rate and the comparison rate. The nominal rate is lower because it only includes the interest rate. The comparison rate on the other hand is higher but it includes the interest rate plus the cost of any loan fees and charges. Lenders are legally required to provide you with the comparison rate for their products before you sign up for a loan. Always use the comparison interest rate when comparing loan products from different lenders.
If you’re almost at the stage of looking for the right investment property, make sure you read up on THIS article to find out about one of the most common investment rules Australian investors break.