Reproduced from The Real Estate Conversation  

According to John McGrath, Chief Executive Officer of McGrath Estate Agents, more homeowners are reviewing their loans to make sure they’re getting the best deal.  

Now that interest rates are on the way back up, more homeowners are reviewing their loans to make sure they’re getting the best deal that the market has to offer.  

We know that lenders offer better rates to new customers, which means if you stay with one lender too long then you can end up paying a ‘loyalty tax’ in this regard.  

It’s important to keep an eye on the home loan market because your mortgage repayments are likely your greatest monthly expense, so it’s worth your diligence and potentially also worth refinancing every few years if your lender isn’t giving you a good deal.  

You can save some time by having a professional do this for you. Ask a qualified, experienced mortgage broker to review your loan and inform you of any better deals available today that are suitable for your circumstances.  

When you want to refinance, a good broker will save you time, money and stress. But there are two other reasons to use a broker that are not well recognised among borrowers.  

The first is their meticulous knowledge of the criteria that each lender uses to assess a loan applicant. Some criteria is mandated by the Australian Investments and Securities Commission (ASIC). The rest is unique to each bank based on their view of risk.  

For example, lenders have different ways of dealing with sole traders. Some will only take into account a percentage of your income in their serviceability calculations because they deem you a bit riskier than applicants who are employees receiving wages or salaries.  

If you’re an investor trying to use equity to buy another property, lenders will typically only factor in a varying percentage of your existing rental income to decide whether you can afford the repayments on another investment loan.  

How could you possibly know any of this if you’re refinancing without a broker’s help? You risk wasting a lot of time and effort applying to refinance with a lender who won’t lend you what you need or who will decline you altogether. And that matters for your credit score.

Which brings me to the second reason to use a broker to help you with your financing.  

Every time you apply for finance, this is recorded as an ‘enquiry’ on your credit history. Every lender you ever deal with in the future will be able to see the number of enquiries you’ve had recorded. A lot of enquiries may not work to your advantage because it can mean a some lenders have refused to give you finance.  

I asked mortgage broking expert, Fabio DeCastro from Oxygen Home Loans to elaborate on these two issues. Here’s what he has to say.  

Fabio: Brokers have experience and tools to help access borrowers’ capacity prior to finalising or selecting any lender. They have a strong idea which lender will give you a better deal based on your specific circumstances. A good example is a self-employed business owner. Lenders assess self-employed applicants in a variety of ways that can widely change the applicant’s borrowing capacity from lender to lender. Good examples are how they each treat depreciation, one-off expenses, and government schemes.  

Secondly, each loan application reflects an enquiry on your credit history – which is why too many applications (because of declines) in a short period of time can reflect poorly on your credit score and may change how lenders look at you. This is a typical scenario when you go direct to a lender and they decline you. My recommendation is to go to a broker first.  

Take this quick 5-minute quiz to find out whether you should consider refinancing now.  

The views expressed in this article are an opinion only and readers should rely on their independent advice in relation to such matters.  

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