Columnist Peter Boehm

In my last column, I gave some tips on making yourself more attractive to a home lender. In response, a number of readers raised the question of using a mortgage broker instead of going straight to a bank.

This week, I'd like to outline what the benefits of using a mortgage broker are, as well as some issues you should be aware of.

Mortgage brokers

In Australia, mortgage brokers are involved in about 40 per cent of home loans - a huge chunk of the industry.

Essentially, brokers are intermediaries. They match borrowers' needs to lenders' products. While their job is to look after you, the borrower, they get paid by their lenders - meaning who they work for can sometimes be a grey area.

So, why would you use a broker? Some of the benefits of a good broker are:

• They have access to a wide range of lenders (known as their 'lending panel') and an in-depth understanding of the loans they offer.


• They bother to understand your personal objectives and needs - matching them against their loans to recommend one with the best features and the lowest cost.


• They do the legwork for you, wading through the thousands of loans on the market, including those from lesser-known lenders.


• They help you to complete your paper work and keep you abreast of your loan application.


• They are good advisors and mentors, particularly for first home buyers or for those who don't meet mainstream lending criteria.


• They stay with you for the life of your loan and they can help you to renegotiate or refinance as your needs change.

Before you turn to a broker, however, there are a few things you should know:

• Brokers make their living selling loans. They earn upfront and trail commissions (over the life of a loan) by selling a particular lender's products. These commissions can vary from lender to lender, and might influence a broker's recommendations. Also, the more you borrow, the more the broker makes, so be mindful not to overstretch.


• Brokers may be independently owned, but they are unlikely to be completely independent. Being truly independent would mean recommending loans without receiving a commission, but, with brokers in business to make money, this is unlikely.


• Lenders impose volume targets on brokers. To retain their accreditations, brokers have to write a certain number or value of loans every year. This can affect their recommendations.


• Mortgage brokers aren't financial advisors. They are not obliged to find you the very best deal.


• Some lenders don't allow brokers to sell their best loans, meaning you could miss out. Always shop around and go online to check the competitiveness of the loan your broker recommends.


• Brokers come in different sizes - from one man bands to massive organisations. Brokers can vary in their skills and expertise. The quality of their service as well as the size of their lending panels can differ greatly.

So, how can you ensure that you're dealing with a good broker and not a bad one? Here are ten questions you could ask your potential broker:

• Will I need to pay you? Most brokers offer a free service. Be wary of any broker who wants to charge you an upfront fee without any guarantee of service.


• Are you accredited by any industry bodies? Make sure your broker is a member of an industry body such as the Mortgage and Finance Association of Australia (MFAA). Their membership subjects them to rules of good conduct and subscribes them to dispute resolution and ombudsman schemes.


• What are your professional qualifications? Make sure your broker has some form of industry, academic or professional qualifications. Ask them how long they've been in business and make sure you're satisfied with their skills and experience.


• Which lenders are on your panel? Find out which lenders your broker can choose from. You might ask which lender(s) the broker does the most business with and why.


• How are you paid? Get the broker to explain how their remuneration works, including their commissions and other benefits.


• How will you choose the loan that's right for me? Everybody's situation is different. Make sure your broker is going to take your circumstances into account. It's a good idea to get their recommendation in writing.


• Are you a lender? Check that your broker is not recommending their own product. If they are, ask why. Get a costs and features comparison and judge for yourself whether their recommendation makes sense.


• Do you have Professional Indemnity Insurance? Be sure that your broker is insured - it's fine to ask to see their current certificate.


• Can you provide me with references? Ask to speak with some of the broker's recent clients. This can be a good measure of their service and professionalism.


• How will you handle my personal information? Ask whether your broker complies with the Privacy Act and obtain a copy of their privacy policy.

While they're never truly independent, the majority of brokers are experts in their field and their services do have a range of benefits, especially for first time buyers.

In the end, deciding whether to use one is a personal choice. If you think you'd benefit from what a broker can offer, be sure to choose wisely. Don't be afraid to ask questions until you're satisfied that the loan you'll be recommended will be one that's right for you.

Have you used or considered using a mortgage broker? What was your experience? (tell us below)

Thinking about buying a home? Visit Our Home Sweet Home for information on and home buying. Follow Pete on Twitter and join the conversation at the Our Home Sweet Home blog.