utilities

Seven out of ten borrowers use a broker. So, if you are reading this, there is a 70% chance you are already using a broker. (Tick that box!)

As the proportion of borrowers using a broker has increased over the past 20 years, it is fair to surmise that brokers are doing something which local bank branches are not doing – or cannot or will not do.

Even if you are using a broker, you might like to make sure your broker is offering you all the ‘value add’ things a great broker does for their clients.

#1. Brokers give you a choice. When you go to a lender, you only get a loan from their product portfolio. We have access to over 60 lenders and over a thousand loan products. But too much choice can lead to decision paralysis so…..

#2. Great brokers simplify your choice in 2 important ways: First, identify those lenders who will lend to you (and exclude those lenders who can’t or won’t lend to you). Second, of those lenders who will lend to you, they sort them so you can choose from the best deals on offer.

#3. Great brokers give you the ‘right to choose.’ Whilst the broker has the responsibility of whittling down the lenders to those who will lend to you, it should always be your choice as to who you want to borrow from; even if your choice is not the cheapest (we all have our reasons!).

#4. Brokers can provide you with information on all aspects of a loan product. Not all loan products are the same. They can appear similar, but the differences can be important for you.

#5. A broker has a statutory obligation to ensure your loan is suitable for you. A lender does not have this obligation.

#6. A lender has no obligation to suggest you could get a more suitable loan from another lender. They are only obliged to say ‘yes’ or ‘no’.

#7. Great brokers value their relationship with you, not just the loan transaction. Lenders and even some brokers are all about the transaction and the minute settlement occurs, you are no longer front of mind for them (in the case of a bank, you are a BSB and Account number!).

#8. Brokers work for you. Your local branch officer does not. He works for the lender.

#9. When organising your own loan (DIY), you have to work out what to tell the lending officer. Sometimes you may be tempted to give ‘too much information’ and sometimes ‘too little information.’ Either way, if you get this wrong, your prospect of getting the loan you want diminishes. Meanwhile, good brokers know what lenders need to know. Plus, a broker can workshop a loan with the lender to make sure all the right information is prepared the right way for presentation to the lender.

#10. Brokers arrange loans for a living. They do it over and over again. When doing it yourself, you need to reflect back on (and remember!) ‘What did I do right last time?’ (Plus, you still won’t know what you didn’t know last time).

#11. Brokers know that getting a loan can be stressful. Great brokers help you manage your stress by communicating regularly with you – they keep you ‘in the loop’ and show you the way. Transparency and objectivity are key traits for many successful brokers. Many of the compliments we receive from our clients focus on our communication skills and our ability and willingness to go ‘well beyond the call of duty.’

#12. Great brokers save you time. They do a lot of the work for you. They gather the information you need to give to a particular lender (the information required varies from lender to lender). Plus, they present your information in a way which gives you the best possible chance of meeting the lender’s criteria. It is amazing what a good explanation can do to placate a lender who is uncertain as to whether to lend you money.

#13. Brokers want to make sure your loan is being lodged with a lender who will say ‘YES.’ Whilst there are no guarantees from a lender until they say ‘yes’, a broker can objectively assess all your information and have informal chats and even pre-present some information to the lender to make sure that your application is given the best possible chance of being successfully approved. We call this Scenario Shopping. And, a great broker will keep you in the loop during this process so you know what is happening.

#14. If you go to a lender and they say ‘NO’, you need to start all the way back at the beginning – and repeat the process. This is the same with online lending portals. A broker, however, has a lot of your information within their software systems and it is easy for them to re-apply with another lender without having to restart all over again from the very beginning.

#15. Brokers are paid by the lender. Whilst there are some circumstances where you might need to pay a broker, these circumstances have to be set out and agreed to by you before you proceed with your loan application.

#16. The interest rates you obtain for a loan product are the same as if you went directly to the lender. So, there are no disadvantages price-wise in using a broker.

#17. Great brokers offer you great value BEFORE, DURING and AFTER your loan is settled. Here are some of the things we do for our clients:

✔️ Free property reports on a property, suburb or region – scan the QR Code.

✔️ Free monthly newsletter on all things finances and property. Intriguing information.

✔️ We use a unique process to whittle down our 60 plus lenders to those who will lend to you.

✔️ Expertise and experience in complex business and legal structures.

✔️ Access to experts across Australia to assist with your property purchase or refinance in legal, property selection & negotiation & property inspections.

✔️ Annual rate check-ins with your current lender to make sure your rates are competitive with their best ‘new customer’ rates.

✔️ Bi-annual scanning of the market to see if you can get a better deal at another lender.

✔️ Access to experts across Australia to assist you with your property maintenance, wealth growth (and more) for you and your business.

✔️ We donate 5% of our upfront fees to a local charity. We believe this works to improve the value of your property by improving the quality of life for those living around you.

Would you like more information? You can ring us now 1300 989 878 or email us at moreinfoplease@bir.net.au. And you can also book a meeting with me: https://calendly.com/michael-royal/chat-re-finance

Michael Royal, our Senior Finance Specialist, is a member of BNI Powerhouse which is based in Altona VIC 3018.

BNI – some background and context

BNI is a worldwide referral network for business owners who are looking to grow their business. There are over 288,000 members across the globe and many of the members are business owners who are looking to grow their business.

As most of us know, small businesses grow their business by referrals from clients, and fellow business owners they interact with.

But referrals don’t just happen. A referral is only made by someone if they believe the referral is someone who delivers quality services on time and at a fair price. And, when some refers someone of quality, they are also seen in a favourable light as they become what is often known as a trusted business advisor.

In BNI, the referral process is known as Givers Gain. When I give something of value to my fellow members, in return I will receive something of value. A famous author and psychologist, Robert Cialdini, characterised this as the power of reciprocity.

This power of reciprocity ultimately as two important benefits:

The emotional benefit of helping someone achieve a better result. This benefit is experienced by both the ‘referrer’ and the ‘referree’
The financial benefit for the referree from the business they receive.

Interestingly, at a member level, BNI does not measure and track the benefit received but rather, they measure the benefit given as the emphasis is on ‘who can I help?’ not ‘what’s in it for me?’

The total emotional benefit? Immeasurable; the total financial benefit? Over USD$18B in 2021.

Quality businesses you know

Michael’s BNI Chapter, BNI Powerhouse, is looking for business owners in the following specific business categories.

There may be other good business owners you know so please don’t limit your thoughts to the categories listed below!

So, if you know quality service providers in any of the categories listed below, please reach out to Michael: 1300 989 878 or visit Contact Us

Real Estate / Property

✔️ Conveyancer

✔️ Real Estate Sales – Commercial

✔️ Real Estate Property Management – Residential & Commercial

✔️ Buyer’s Advocate

✔️ Vendor’s Advocate

✔️ Furniture Removalist

Trades – Property, Business & Personal

✔️ Gardener

✔️ Glazier

✔️ Handyman

✔️ Mechanic

Personal or Business Services

✔️ Business Broker

✔️ Celebrant

✔️ Cleaner

✔️ Immigration Lawyer

✔️ General Insurance Broker

✔️ Photographer

✔️ Videographer

✔️ Travel Agent

Health & Wellness

✔️ Occupational Therapist

✔️ Physiotherapist

✔️ Podiatrist

In other articles, we have shown that brokers now process more loans than the Big 4 Banks – about 6 out of 10 borrowers now use a broker and 1 in 4 borrowers who are with a Big 4 Bank are looking to change.

When shopping for a loan, here are 6 common issues borrowers need to consider before seeking a particular loan. Of course, if you use a broker, they will (or should) ensure you have considered all of these issues before you proceed with an application for a loan.

1. Low Advertised Interest Rates

Borrowers are often wooed by the advertising of low interest rates. And understandably, they often shop online to find the lowest deal.

What they don’t realise is that the lowest advertised deal is just the same as a car advertisement – the key word is the word immediately prior to the advertised price ‘from…’

And like a car, the cheapest rate is often the ‘no frills’ rate. It doesn’t have as many features as the premium model and like the cheapest car, when you get behind the wheel, it can feel a little cramped and dare I say it, ‘featureless’.

Plus, you soon discover that not many customers (and certainly not all customers) fall within the small group of customers who fit the profile for this ‘featureless loan’ (unlike a car where the customer chooses which car to buy, with a loan the banks decide who fits which loan – you can want the loan but the bank may not want you!).

If you use a broker, they will work with you to ensure you set realistic expectations of the rate you are likely to be able to negotiate.

2. Credit Cards

We all love our credit card! And, we love a high limit so we can ‘always have enough in reserve for those emergencies.

The problem is the lenders like to look at the limit and not the amount you spend each month – even if you pay it off before incurring any interest charges.

To put this into an example, a credit card with a $20,000 limit which is only used up to $4,000 per month and paid off each month end is assessed by the lender as being the equivalent of $20,000 in debt – not $4,000 and certainly not $Nil.

Good brokers review your limits before you start the loan application process as they know what a particular lender is looking for and whether your credit card limits might impact the amount you can borrow.

3. Credit offered by retailers: aka ‘After Pay Lenders

Every time you obtain credit from a shop, guess what happens: the lender who provides the finance for the retailer has a peek at your credit file. And this peak is noted for all other lenders to see – even if you don’t go ahead with the loan.

And, every time a lender has a peek, it adversely affects your credit score. You can have a perfect credit history in terms of zero defaults but these peaks represent a warning to a potential lender. They suggest you are looking to borrow money ‘here, there and everywhere’. Now, this might not seem fair but it is the world of credit we live in.

Sometimes, your broker will suggest you ‘cool your heels for a while’ and get your credit score up before applying for a loan. Or, they will assist you set a realistic expectation before you start so you don’t get a nasty shock later on.

4. Honeymoon or introductory home loan rates

Quite naturally, borrowers are attracted by the interest rate quoted for the first year of a contract.

These facilities normally revert to the “standard variable rate” after the first year. The issue is, is this standard variable rate equal to or worse than the rate you can negotiate up front?

Chances are, once a lender has got you in with their honeymoon rate, the rate you revert to after the honeymoon period is going to be higher than the rate you can negotiate up front – particularly if you are using a broker as brokers know ‘how low you can go’.

5. Fees and Charges

Most, but not all loans will probably have a range of non-negotiable establishment fees for the application process, the lender’s legal costs and the valuation fees.

A broker will be aware of these costs for each lender and will factor them into your funding needs.

Also, there may be exit fees, particularly for fixed rate loans if you want to exit the fixed rate portion before the term for the fixed portion has expired.

Your broker should ensure you have considered this issue and made sure you have considered what is best for you in terms of the mix of variable and fixed loan amounts.

6. Fixed Rates

These days, many borrowers consider putting a portion of their loan in a fixed rate loan so they get some certainty as to the repayments. Whilst this is a good idea to consider this option, it is not without its own risks and issues.

Apart from exit fees for an early exit of a fixed rate loan, fixed rate loans can be more restrictive in terms of some loan features such as interest offset accounts, extra repayments and redraw facilities.

Your broker can explain to you what restrictions will apply to your fixed rate loan with a particular lender before you dive in to ‘lock in a good rate’.

Would you like more information? You can ring us now 1300 989 878 or email us at moreinfoplease@bir.net.au

As a broker, we have seen it all. So, let’s open your eyes up to some things which you probably know but may not have thought about too deeply. (I mean, when it comes to borrowing, it can be hard to get enthusiastic).

Whilst we love the big banks when they offer our customers the most suitable loan product, we are also wary of accepting all that we see and read from them at face value.

In reality, the big banks are no different to the big telcos., and the big insurers. They spend a fortune on advertising to try and convince you ‘they are best for you’. But this doesn’t mean they are.

However, for a borrower faced with a myriad of advertising messages and a history of having banked at the one bank all their lives, considering another lender other than ‘their bank’, can be daunting – and time consuming – and stressful.

Now, whilst we have a vested interest in recommending a broker (because, let’s face it, we love being a broker!) There are lots of good reasons why you too should consider whether walking into a high street bank is a good idea for you.

Here is our 14-point hit list of things you should know.

1. The big banks often offer their new customers better deals than their existing customers. And if you are swayed by their pitch, you will be an existing customer soon enough….

2. Big banks rely upon the principle of ‘the lethargy to change’. Because when you are on your own, it is hard work to change lenders. Lenders know this and they also know that a customer will be likely to stay put and only consider another loan product and lender if they are moving house.

3. Shopping for a loan at a high street bank is like shopping for clothes at a single brand retail outlet. You have no chance to compare with other suppliers and you have to buy from the suite of products they offer you.

4. When you only shop at one bank, you either fit – at a rate they are willing to offer you; or, you don’t fit – which means starting all over again somewhere else.

5. No one at your local high street branch will suggest you ‘go down the road’ to their competitor.

6. No bank is required to offer you their cheapest product.

7. The big banks have a ‘carded rate’ – which is similar to the rack rate for a hotel. They discount this rate from time to time to win business. And, if you negotiate a discount, it doesn’t mean you are paying their lowest rate.

8. No bank is required to keep you at their best rate. In fact, having a higher card rate allows a big bank to engage in ‘rate slippage’, whereby over time, your rate gradually becomes less competitive (and more profitable for the bank).

9. Banks don’t review your loan product to make sure it is still suitable. Until of course you try, and leave.

10. Big banks don’t give you a relationship manager. Just a 1300 number.

11. 7 out of 10 borrowers use a broker. That means only 3 out of 10 borrowers walk into their local branch.

12. Brokers may recommend one or more of the big banks. But they are required by law to only recommend them if they offer you a loan product which is suitable for you.

13. Around 60% of the loan products recommended by brokers are those provided by the big 4. That means just under half of their customers are being recommended loan products with other lenders and which the broker believes are more suitable for the borrower.

14. Banks don’t have a statutory best interest duty or responsible lending obligation. Brokers do.

Would you like more information? You can ring us now 1300 989 878 or email us at moreinfoplease@bir.net.au

1. All borrowers’ circumstances are not the same

In today’s fluid world, nearly all borrowers have different histories of work, credit experience, income, households, expenses – and the list goes on.

For this reason, the advertised ‘low rates’ being advertised by a lender might only apply to a small percentage of the borrower market: for example, those borrowers in a steady job which they have held for more than 3 years with a steady income and low expenses and no unnecessary credit debt (and definitely no Buy Now Pay Later loans!)

Example: Self employed are often not targeted by online lenders – they are just not ‘vanilla’ enough to be able to be processed by bots.

2. You don’t necessarily qualify for all lenders

The criteria applied by lenders when considering a loan application can vary enormously.

These days, with over 60+ lenders lending to home buyers, there is a huge range of variations in what lenders consider when assessing whether to lend money to an applicant.

The issue for most borrowers is they don’t know the details and the ins and outs of each lender’s policies.

Plus, lender’s policies are changed regularly by lenders as the macro-economic landscape changes and as their appetite for a particular market segment changes.

Example: We had a client who worked for a major bank but didn’t qualify for a loan with his employer – but we obtained a loan 50% higher with another lender.

3. You just can’t change loan products!

Yes, you heard it here first! The biggest failing for many borrowers is not understanding that even what appears to be small changes to their loan product can be seen by their lender as a completely different loan product. And with a new loan product, the lender will charge you all their upfront fees all over again. Plus, you will have to redo all the due diligence you did the first time around to make sure you ‘qualify’ for their current deal.

4. Wooed by the Cashback

They sound good and can be a nice way of starting your relationship with your lender. But, they come with their own catches – including a rate which might creep up faster than you were imagining.

Remember, nothing is for free and the major lenders make their money by borrowers looking for immediate gains and then forgetting to keep on top of the on-going costs of their loan.

5. Falling in love with the honeymoon or introductory home loan rates

These lower introductory rates can be appealing. And, borrowers can be expected to be attracted by the interest rate quoted for the first year of a contract. However, once the honeymoon period expires, the fine print will often say the rate will revert back to the lender’s standard variable rate – which can be quite a lot higher for the major lenders (their standard carded rates can be breathtakingly high).

Plus, honeymoon packages can attract early exit costs as well as monthly accounting keeping fees – all of which are ways for the lender to make back the money they are giving you on your lower initial rate.

In recent times, these honeymoon packages have been phased out in favour of cashbacks but that doesn’t mean they are gone for good. The marketing gurus at the major lenders will no doubt resurrect these offers as soon as they feel it will help boost their market share.

6. Not Checking Exit Costs

The average life of a loan is around 7 years – even though the loan term might be 30 years.

And, no surprises, there will often be exit costs when paying out a loan. Plus, lenders charge legal and preparation fees for the discharge of your mortgage and some will sneak in a service fee.

Whilst not exorbitant, these costs can be an irritant when you are looking to move on because you want to ‘save some money’. And, they can vary significantly between lenders and between loan products.

7. Not checking upfront costs

Make sure you check all the fees for getting a loan. Establishment fees, valuation fees, legal fees, the list goes on.

The important thing to note is that these fees can vary enormously from lender to lender.

8. Choosing a Fixed Rate loan product

2021 was the year of the fixed rate loan. However, the heady days of low fixed rate loans are over for a while and when the fixed rate period expires, you will be back to paying the currently available variable rate loan.

Fixed rates have less flexibility and fewer options (e.g. limited redraw and generally no offsets accounts) – so you need to make sure they are suitable for you and your cash flow. When a client wants to ‘fix’ a loan, we will ask them if they ever have any surplus cash and if so, a split loan (fixed and variable) might be a good idea so they can park their excess cash in a variable rate split with an offset facility.

Plus, fixed rate loans will have a break cost if you need to exit early (or if you wish to change loan products). The amount of this break cost will be a formula set by the lender.

9. Going Interest Only to reduce on payments (Vs Principal & Interest payments)

Interest Only is good when your cash flow is tight as the payments can be significantly lower than a Principal and Interest payment.

However, the Interest Only rates tend to be a little bit higher than P&I rates so make sure you run your numbers on both options if you are thinking of taking out an Interest Only loan product.

Interest Only is often regarded as being more attractive for Investors as principal payments are not tax deductible so it allows the investor’s principal to be utilised in other perhaps more productive alternatives. However, the logic still needs to be applied as it may be that the best short term use of an investor’s funds is to free up equity in their investment portfolio.

A nice to know: when interest rates are low, the greater the proportion of your monthly payment is allocated to your principal repayment. So, when rates are low, you are trading off reducing your principal quickly Vs lower overall payments.

10. To have or not to have: Offsets and Redraws

An offset account is where the funds in your savings account are ‘offset’ against the balance you owe on your loan account; reducing the interest you are being charged whilst those funds are in your offset account. This is a great facility when you have variable cash flows with surpluses available from time to time as the offset account is a ’come and go’ account – as you need the funds, you withdraw them.

However, there are often annual fees associated with these facilities (around $300 is a typical figure) so you need to factor in these costs when doing your maths.

The reason why an offset is attractive is that the surplus funds, if held in a normal savings account, will earn you less interest than what you can save if the funds were held in an offset account. Plus, the interest you earn in a savings account is subject to tax whereas the savings in interest from an offset account does not impact the tax you have to pay.

A redraw facility operates similarly to an offset account but you have to physically ‘withdraw’ the funds you need and place them in your savings account in order to be able to use them. For some types of payment transactions this might be acceptable but it does not have the flexibility of an offset account ‘come and go’ benefit.

11. The cost of a Professional Package

The major lenders offer “Professional Packages which can provide better rates than their ‘normal’ customers might be paying and might include things like credit cards with rewards etc. It sounds good and it is nice to know you are regarded as a ‘professional’. But, such packages come at a cost – often an annual fee.

So, it is worth comparing these packages with an ‘everyday’ low rate offered by other lenders.

12. Loyalty sucks

Sorry to put on a dampener but that is the reality. Once you have a loan with a lender you are now just a source of recurring income. A lender makes their money from their existing customers who do nothing other than pay their loan. The upfront costs to win the customer are amortised over the ‘life’ of the loan. And whilst your loan term is probably 30 years, the average life of a borrower’s loan is often less than 7 years as most borrowers either sell then rebuy or change lenders (so your current lender has to make their money on you quickly!).

13. Not planning for your future

Every loan is created upon your circumstances ‘now’. They don’t take into account an unknown future.

However, if you know you are going to move or you know you are going to need to do a reno or knock-down and rebuild, you need to factor in these costs and the likelihood that you will need additional funds at some point in time. If you know how much you might need and when, you can save yourself a lot of heartache and stress if you plan for this upfront.

14. I can do this myself (aka not seeking an independent professional voice)

I am leaving the best to last!

When you are thinking about a loan, you should understand the time it takes and the difficulties with making sure you have done all the research you need to do so you make the right choice for you. This is where an experienced broker can help you. They have access to databases and algorithms which allow them to crunch the data from a huge panel of lenders. And, they keep themselves up to date with research on lenders and lender policies so they understand which lenders will be a good fit for you.

Before you even submit an application they will have sorted out those lenders who will lend to you and importantly, those lenders who will not lend to you. And, they will involve you in the final selection so you feel comfortable with who is going to lend you their money. (The good brokers also run your scenario by your chosen lender ‘just to make sure’ you fit).

But there is more. Great brokers check your rates regularly against your lender’s current ‘best rates’ and they offer you lots of things which are good to know on your property (e.g. free property reports) and about finance so you can make informed decisions. The list is actually much longer but you get the drift – brokers.

Would you like more information? You can ring us now 1300 989 878 or email us at moreinfoplease@bir.net.au