Home Loans

Mortgage brokers act as intermediaries between banks (both traditional and digital) and borrowers. They work together, not at cross-purposes.

If you’re thinking about taking out a home loan though you may be better off talking to a mortgage broker. Good brokers have access to dozens of different lenders, will educate you about different loan structures and their implications, and aren’t biased towards one lender’s set of products.

There are no inherent disadvantages to using a mortgage broker over going directly to a lender. All brokerages approach lending differently though and certain factors can negatively affect borrowers.

Here’s what you should watch out for when you’re choosing a broker.

1. Broker fees. Brokers that charge fees to you, the borrower, can seem less biased (because they aren’t paid by lenders). In reality, there’s a real risk that you could be charged thousands of dollars for the same loan you would have received if you’d gone directly to the lender in question.
2. Limited lending panels. A lending panel is made up of the lenders that a broker can refer you to. Small lending panels (under 10 lenders) mean that the broker may not be able to find you the best possible loan on the market.
3. Preferred products. Some lenders offer substantially higher commissions than others. If you notice your broker trying to ‘push’ you towards a specific lender without any justification, be very wary.

There is no ‘minimum deposit’ for a mortgage. If you have a deposit equivalent to 20% or more of a property’s valuation and you can service your loan, you’ll probably be able to take out a home loan from the majority of lenders.

If you have a deposit equivalent to 5–20% of a property’s valuation, you may be able to secure a mortgage, although you’ll probably have to pay lender's mortgage insurance (LMI).

Deposits of less than 5% normally aren’t enough for most lenders, although your broker may be able to find a digital bank willing to explore options.

A loan-to-value ratio is the amount of money you borrow divided by the purchase price of your property, expressed as a percentage.

For example, if you had a $60,000 deposit on a $600,000 property, you would have an LVR of 90%.

The higher your LVR, the harder it can be to secure a mortgage. If you have an LVR over 80%, your lender may require that you pay lender's mortgage insurance (LMI) to offset the added risk. Although traditional banks often have a maximum LVR of 90% or 95%, your mortgage broker may be able to connect you with digital banks that are willing to work with higher LVRs.

A split home loan is a loan that has been divided into two or more parts. Having a split structure means you can nominate one portion as a fixed-rate loan and the other as a variable-rate loan.

Because fixed-rate and variable-rate loans have different features and benefits, a split structure gives you the best of both worlds – a level of repayment certainty, combined with potential benefits from interest rate drops and the ability to make repayments faster. Depending on the lender, you might also get access to redraw facilities and offset accounts.

Of course, the nature of split home loans means that the less desirable features of both loan types are always present. The fixed-rate portion won’t benefit from interest rate drops, and the variable-rate portion could be vulnerable to interest rate rises.

So, while a split loan can be beneficial in certain circumstances, it’s important to talk through the implications with your mortgage broker before you make any decisions.