HOW CAN YOU FIND THE BEST HOME LOAN? IT ALL STARTS WITH THE BEST BROKER.
The most reliable way to getting the best home loan for your new investment property is to make sure you have the right advice. What may seem like a sweet deal up front could sour your investment property portfolio down the track. Nathan Birch says, “Acquiring the property is 50% of the battle, because if you don’t have finance for it, you can’t buy it.” Many investors will get finance for their first, second and third investments without too much difficulty, but then they get stuck.
In order to avoid these lending roadblocks, it is essential to choose the right mortgage broker from day one. The right broker will understand and support your goals as an investor and they will educate you on the best way to structure your borrowing. We interviewed the guys at Zinger Finance about the importance of finding a good broker, and the key things investors should remember when choosing one.
HOW CAN A GOOD MORTGAGE BROKER HELP YOU SUCCEED WHEN BUYING INVESTMENT PROPERTIES
Tim Wong, Finance Manager at Zinger Finance, says the right mortgage broker will “partner with you,” over the course of your investing. He says, “Just like an accountant, who you’re going to need from time to time for different types of advice, a good broker should be exactly the same – not someone who’s just going to be there to help you get your first loan and then that’s the end of it.” As an integral member of your success team, a good mortgage broker is in it for the long run. They “should know exactly where you are and what you are trying to achieve and come up with good strategies to help you get there,” says Wong.
Graham Turnbull, Senior Finance Strategist for Zinger Finance, says that this partnership encompasses an educational role, ensuring the investor makes the right choices along the way in order to avoid costly consequences. Wong says he has seen several clients who had previously decided to fix the interest rate on their loan repayments for a certain period of time. Although this protected them against rate rises, it also prevented them from accessing equity in order to purchase more when the lenders they were with were no longer able to assist. Breaking from their fixed-rate loans in order to switch lenders and purchase another property would have cost them thousands in otherwise avoidable break costs. This has forced many people to wait on the side-lines until the fixed term expires, wasting valuable time and letting opportunities go by.
Using the right broker, who will educate you on the consequences of your decisions, can prevent costly mistakes such as these. As part of your education, a good mortgage broker will also keep you up-to-date on any changes to lending policy that may affect you.
A good mortgage broker will set up the best loan structure to deal with your goals. Turnbull says, several of his clients have set up the wrong loan structure because they have listened to the wrong broker – a mistake which has cost them time and money. He has clients who have been advised to borrow at an LVR of 90-95% (with mortgage insurance) in order to purchase two properties with 5 or 10% deposits instead of one property with a 20% deposit. He says, this strategy has caused them to get stuck after purchasing their fifth or sixth property. “They can not move – they are sitting here just on the sidelines, waiting for the properties to grow.” By listening to your goals and assessing your situation, a good mortgage broker will put a structure in place that will give you the lending mileage you need to build your portfolio.
HOW TO CHOOSE THE RIGHT MORTGAGE BROKER FOR THE BEST HOME LOAN
When choosing a mortgage broker, there are several important considerations to keep in mind. Here are some tips on how to find the right one for you, as well as some key points to remember.
HAVE A STRATEGY AND TARGET WHAT YOU WANT
Turnbull says, before choosing a mortgage broker, investors need to be clear about what they want to achieve in their investing – “What are your goals, what are your time-frames, what are your plans?” In addition to knowing your own goals, he says, “You need to know what you are looking for in a mortgage broker.”
COMPARE THE EXPERIENCE AND KNOWLEDGE OF DIFFERENT BROKERS
Find a broker who has a proven track record at helping investors build portfolios. Turnbull suggests the following strategy for determining whether or not a broker has the expertise to benefit your investing.
“I would put forth my plans, my goals and say, ‘Here is what I want to do and here’s what I want to achieve. Can you help me with this? And, if yes, how?’” He says, “Once they give me a brief of how they plan to help me out, then I would like to know, have they dealt with large portfolio clients and, if yes, how many?” He says it is important to interview more than one broker in this way and then compare the responses they give you.
Wong agrees, it is important to shop around for brokers to compare the advice they give you. He says, comparative website such as comparethemarket.com.au only focus on the price perspective. They don’t compare the lending policies or serviceability requirements of financial institutions – which are important factors for portfolio building investors. He suggests visiting government pages that offer advice on choosing brokers, such as ASIC’s Moneysmart.gov.au, as well as conducting your own web-based research into different brokers.
CHOOSE A BROKER WHO CAN ANSWER YOUR QUESTIONS
Wong says, it is important to choose a mortgage broker who will answer any questions you have. The type of answers they give should make sense to you in terms of what you want to achieve. Don’t shy away from asking them to elaborate if you don’t understand at first. As an investor, you are putting a lot at stake and you need to know that your mortgage broker will give you the time of day to help you understand the strategies they are suggesting. A truly valuable broker will be able to correlate your goals with the type of loan/lender you want and give you a reality check if they think this is not the best way forward for you.
ASK WHAT THEY SPECIALIZE IN
Ask prospective brokers about the areas of lending in which they specialize. Wong says, some brokers may specialize in non-conforming loans for people with credit problems, whereas, others may focus on investors nearing retirement etc. If you know what you are looking for and research what is out there, it will become easier to know which questions you need to ask.
BEWARE OF BROKERS WHO OVER PROMISE
Wong says, “Be wary of someone who looks like they’re giving answers just for the sake of being able to answer your questions.” He says, “It’s such a changing landscape that something that may have been true last week may have changed this week.” If a client asks a technical question and there’s any uncertainty, Zinger Finance will confirm their interpretation with the lender before getting back to them with an answer.
STEER CLEAR OF DODGY BROKERS
Any broker who asks you to falsify pay-slips – or offers to falsify them for you – in order to get a higher loan amount is engaging in a criminal activity under which you will also be implicated. Wong advises investors to steer well clear of brokers such as this. He says, the legal implications of this situation would be that the loan was obtained under false pretenses, and that the client would be party to the deception.
MAKE SURE THEY FOLLOW RESPONSIBLE LENDING GUIDELINES
Brokers make their money through commissions – the larger the loan amount, the higher the commission they will make. Because of this, says Wong, “Some brokers will just try and take you to your maximum borrowing capacity whether you actually need it or not.” He says, “There needs to be enough care taken that if anything unforeseen was to happen, that person [the borrower] is not going to be in a position of hardship.” A good broker will have a detailed discussion with the investor to determine any possible lifestyle changes that may happen down the track, such as maternity leave or a change of career, that would affect the investors ability to repay their loan.
ARE THEY WORKING FOR YOU OR THE BANKS?
Be wary of brokers who favour lenders that pay them the highest commission. Wong says, this has gotten a lot better in recent times but there are still brokers “putting their own interests ahead of clients.” Turnbull says, when choosing a broker, “Ask them how they are going to help you. At some point they are going to mention about lenders.” He elaborates, “If they only refer to one or two lenders, then you know they favour those lenders.” He says, Zinger Finance uses different lenders and determines the best one based on the client’s needs. When a client approaches him, he assesses their goals and situation and then researches which lender is the best choice, before coming back and presenting his findings to the client.
FORGET THE ‘RATES MENTALITY’ AND THINK OF THE LONG TERM
According to Wong, “A lot of people have a rates mentality.” He says, many investors make the detrimental mistake of looking for a broker who can line up finance at a competitive interest rate. “A lot of brokers will focus on that instead of the loan structures,” and get you a low interest rate loan instead of focusing on what you need to build your portfolio. The team at Zinger Finance do things differently, says Turnbull. Instead of focusing on getting the cheapest interest rate, they look at the credit policies and servicing requirements of different lenders as well as the type of clients they lend to. He says, “Not many brokers know what to look for in certain portfolios.” Zinger focuses on finding lenders that enable investors to maximize and grow their portfolio. They do this by focusing on the long term, not just on the best rates.
THE ZINGER DIFFERENCE
Zinger Finance has a proven track record of helping investors build portfolios. Turnbull says, “95% of our clients are serious investors, ranging from buying two properties a year to about 15, 20 properties a year.” He says, “We work closely with Nathan Birch, so we understand property markets to a very large extent.” Wong says, Zinger entered the scene because there was a need to help Binvested clients get their financing set-up correctly from the start of their investing journey. Prior to Zinger, he says, a lot of Binvested clients were getting stuck due to getting the wrong loans or having the wrong loan structures in place. To find out how Zinger Finance can help you on your investing journey send an enquiry today.