The top questions refinancers should ask a mortgage broker

If you’re looking to refinance your mortgage, a mortgage broker can be a real asset. Not only can a broker take the hassle out of what can be a long and stressful process, but they may be able to help you nab a better deal.

But before you pick up the phone and get in contact with your local mortgage broker, it’s worth writing down some of the key questions you should be asking them. 

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Questions to ask a mortgage broker

1. How can a mortgage broker help me?

An experienced broker should be able to:

• Outline the service they will provide;
• Advise whether it is worthwhile to refinance now (a good broker will tell you if you should refinance at all);
• Outline the benefits of refinancing apart from simply lowering your interest rate and your monthly repayments;
• Explain the costs associated with refinancing;
• Calculate whether Lenders Mortgage Insurance (LMI) would mean you’re not actually saving money from refinancing;
• Consider the benefits and restrictions of any loans recommended including penalties for early exit, and;
• Explain how refinancing can be suited to your specific goals.

Put simply, you want to be confident that your broker is not just funnelling you through the bank's books to earn a commission. You should be thoroughly assessed to determine if refinancing is in the best interests of your financial situation in the short and long term, and how much you could benefit by doing so.

For example, if you purchased a home recently and prices have fallen in your area, refinancing may not yet suit you. You may not have built up enough equity to qualify for the more competitive interest rates that lenders generally offer customers with loan-to-value ratios (LVRs) under 80%.

2. What perks and benefits can I gain through refinancing ?

One of the most common reasons homeowners refinance is to get a lower interest rate on their mortgage, however there are a range of benefits that refinancing may offer, including:

• Adding features to your loan, such as an offset account or a redraw facility.
• Paying fewer fees
• Accessing your equity to get extra cash for anything from a home renovation, paying for a family holiday, or a future investment.
• Consolidating debt by increasing the loan amount to help cover the cost of other loans.

3. What costs are involved in refinancing? 

Your current lender and a new lender may charge you fees and ongoing costs to refinance your mortgage. Generally speaking, refinancing can cost you hundreds of dollars - sometimes thousands. 

It’s worthwhile knowing these costs upfront so that you can assess how they may fit in your budget, or determine whether refinancing is even financially feasible right now. Common refinancing fees include application fees, settlement fees and break costs if you leave a fixed rate period early. 

4. What will I save by refinancing?

If you are refinancing to gain a lower cost loan, you may be wondering what, in dollar terms, your savings would be if you refinanced. This question can help you calculate your break-even costs – the point at which the cost of refinancing is paid for by the savings from lower mortgage repayments.

Ask your broker to help you discover not only what your savings will be, but when these savings might pay for any refinancing costs you may pay. Alternatively, you can use a refinance calculator to estimate your potential refinancing savings.

A cash back deal may come in handy here, as some lenders may offer new customers anywhere from $2,000 to $10,000 to get them on their books. This cash can be put towards covering the cost of refinancing. 

Of course, there may be fewer home loan options to choose from if you’re after a cashback, and these loans may not be best suited to your personal goals or financial situation.

5. Is this the best loan for me, or are you just trying to earn a commission?

You will not not typically pay a mortgage broker for their services. Instead, brokers are often paid a commission by banks when the broker signs you up as a new customer.

So, how do you know it’s the best loan for you, as opposed to the best loan for the broker? You’ll want to be confident that you are receiving a loan that best suits your needs and goals, and that there is no possibility it is an inferior or more costly loan that offers a better reward for the broker.

New legislation introduced in 2021 requires mortgage brokers to act in the best interest of their clients, and to prioritise the consumer if there are any potential conflicts of interest. If you’re still concerned that a broker’s mortgage recommendation may not be the best option for you, you can ask them about the commissions they receive.

Are there alternatives to using brokers?

If you don’t want to rely on someone else to refinance your home loan, an alternative to consider is to perform your own home loan comparison and be your own broker.

Using comparison tools, like RateCity’s comparison tables, you can do your own research around how each home loan compares to others on offer. You’ll be able to easily view loan options side by side and filter down your results to show mortgages that suit your specific situation. Then you can look at the interest rates, features, and potential repayment costs to discover if there are better options out there.

You can also look at the Real Time Ratings™ of different home loans to get a better idea of the overall value they offer, based on their combined cost and flexibility.

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