What You Should Know About Mortgage Brokers

The mortgage broker does not usually charge the borrowers any fees, as long as they receive a commission from the lender, but the lender may include the cost in the fees they charge the borrower. But some lenders do not pay brokers commission. This is usually for commercial loans. In this situation brokers may charge borrowers a brokerage fee. This should be disclosed to you up-front, and the broker should indicate that it is their fee, and not the lender’s. The brokerage fee is usually between 0.25% and 1.50% of the loan amount, but fees have been occasionally higher than 3%.

However many brokers charge borrowers commission if they choose an optional extra service called ‘mortgage reduction service’. This includes setting a budget for you, and showing you effective methods of using a line of credit to reduce your mortgage. Although they charge a fee for this service, they also receive a commission from the lender that approved your loan. Brokers are only allowed to charge you a fee for mortgage reduction planning if they regularly monitor your loan, and provide you with regular progress reports.

Some of the smaller mortgage brokering companies may provide you with better service and value than their large counterparts. This is because the smaller companies are often able to offer a wider selection of lenders due to various agreements and arrangements.

Most lenders have a minimum volume of loans a broker has to submit to them for them to continue their business relationship with the broker. For this reason brokering companies may band together and submit their loans through common agreements with aggregation companies. In this way no broker has to meet minimum loans volumes. The provider of the common agreements known as the ‘aggregator’ takes a small percentage of the brokerage’s commission, in return for providing a wider selection of lenders for borrowers. The network of smaller brokerages allows them to rely on each other for administrative support and advice on unusual or uncommon deals.

Smaller brokerage companies may also offer innovative services that provide benefits for people interested in property investment, which includes seminars, chat lines and online forums. These companies often go the extra mile to secure your business. But they still need to meet the usual requirements of having professional indemnity insurance, and accreditation with a recognised association such as the Mortgage Industry Association of Australia or the Finance Brokers Association of Australia.

Professional indemnity insurance covers the broker’s company against any incident or activity that may give you grounds to seek financial compensation from them. It can provide you with confidence to know that successful checks have been conducted on the company by the insurance agency.

For information on mortgage products go to http://www.creditworld.com.au/home-loans.html.

Summary

• Mortgage brokers will not usually charge you commission, as they receive it from their lenders, but the lender you choose may pass on the cost to you in their fees.
• You may be charged by your broker if you choose an optional mortgage reduction service, which involves regular monitoring of your mortgage with regular progress reports.
  
• Smaller brokering companies may provide better service and lending options, as they often have a wider range of lenders than larger companies.
• Be sure to check that your broker has professional indemnity insurance and is accredited by a recognised industry association.

Article correct at its author date: Jan 2007. Copyright Virtual Office Space, Any unauthorised reproduction of this article will be prosecuted to the full extent of the law. Credit Cards Australia.

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