Forum Replies Created
Gidday Ferdinach,
It seems toe me you have the tiger by the tail a little, so I hope this helps:
1. Timing – An approval in principle takes no time at all and if you allow a week that should be plenty. However you have to make your loan selection before you make your application and you probably want to allow another week to skill up for this.
1b. Direct or broker – Why not borrowers agent? Failing that, if the lenders that interest you are commonly available through a broker, then definitely go the broker – a good one should save you time and money. Take a moment to understand the difference between pro-consumer mortgage brokers and the old fashioned type – it's important.
2. It seems you are asking if you can capitalise your Stamp Duty costs (i.e. add it to your loan) and the answer is yes you can, however this will increase your LVR. Although I am not a big fan of LMI, you shouldn't get too fixated on whether your lender will charge it or not as this is only part of your Total Individual Cost. Just make sure you get a quotes on a range of lenders that show you the different costs, interest, fees and charges included.
3. Both Michael and Richard have offered estimates based on the limited information you have posted and this is not the full extent that will determine your capacity. As you are six or so months out., the reality is that your borrowing capacity will probably change due to any number of factors, including the RBA cash rate, competition etc. It's good as a guide for now, but again, don't worry about this too much until you get closer to the purchase date. By then, property prices may have changed as well.
4. Mostly no, but it does depend on your agent/broker/lender. It is best to ask them when you arrive at that time and place.
5. Servicing will be based on your income at the time and given you will be 18+ months in the job, the pay rise will almost certainly be factored in. If it isn't, your agent/broker isn't doing a very good job.
6. Who has bad credit? If you suspect you have bad credit noted on your credit file then definitely talk with a borrowers agent or mortgage broker before making applications. Your full history must be disclosed in the first instance if they are to help you find the best solutions.
I hope this helps.
Cheers,
Michael
Gidday Pokeutpia,
Back when I owned bSmart, I know that the brokers were able to arrange cash backs without a full refinance. The policy will vary from lender to lender and also on the skill and experience of your broker or borrowers agent.
Although dealing with a regular cash back mortgage broker is fine, they still carry the bias hazards of ordinary brokers. Think about asking your question directly to a pro-consumer mortgage broker or better still a borrowers agent.
All the best,
Michael
Dan42,
With respect, Alistair has declared that he charged a fee for his advice which means that it should be in the best interest of the client. Do you disagree with that idea?
And what's this about a few bucks ? $32,000 in today's' money according to your calculations on page 2 of this thread:
Dan42 wrote:What Alistair is saying is that the saving is over 30 years, so it is not worth $80k in real terms. My hurried Discounted cashflow analysis, at a rate of 8% suggets it is more like $32k in todays money.Still nice, but not as nice as 80k.
Even if it was $20,000, it still wouldn't qualify as 'a few bucks' to most prudent investors.
As for rebating trails, I'm only interested in looking after the borrower. I don't rebate commissions because I don't take them in the first place. Oh and I don't charge borrowers either.
Gidday Alistair,
So what you are saying is your client paid you a fee for service as a financial planner to get advice on income and loan structure as he could have done with any other suitably qualified and licensed planner.
If your client were a prudent investor as you seem to suggest, why wouldn't he have simply taken this advice (given he has already paid you a fee) and used any of the mortgage brokers that rebate their commission to broker the loan? That way he would get the best of both worlds and you still get your advice fee which seems like a pretty fair deal all around.
Upon charging your client a fee for financial advice, did your SOA disclose to him that brokering of the loan, which was clearly separate to that advice, could be arranged such that he would become the beneficiary of thousands of dollars of mortgage broker commission? Did you do the right thing and work out the dollar amount those commissions would reach including his potential savings? If not, aren't you breaching your obligation to your client as a fee for service financial planner?
Your assertion that a mortgage broker paying rebates could not have provided this advice is likely to be untrue. At least two that I can think of who rebate mortgage broker commissions are also licensed financial planners. One of those is a CPA.
Interestingly, the rebate mortgage broker who is a licensed financial planner and CPA comfortably admits that, when it comes to the mortgage broker commission rebates, his competitor offers a better deal. As a result he gets the financial planning, accounting business and some mortgage brokering business, his competitor gets the mortgage brokering work of prudent borrowers.
This has naturally emerged and is neither a formal or commercial arrangement between the two businesses. (i.e. no referral or kick back agreement). It also seems like the cleanest model of all as conflicts of interest that can harm the client are kept to a minimum.
Personally, I'm not a big fan of the fox looking after the hen house and believe that clustering Financial Planning and Mortgage Brokering services on a commercial basis unnecessarily risks harm to the client. I'm not alone on that one, see here: http://www.heraldsun.com.au/business/barefoot-investor/how-to-spot-a-spruiker/story-e6frfim6-1225961603906
e-stan,
There are several different models in the market. You can read various opinions here.
Ha! Thanks Dan – My bad. That explains Richards signature.
However it doesn't answer my question regarding:
Qlds007 wrote:I am aware of several major lenders who will not accept loans from these brokers.The situation in 2005 was then as it is now. The rumour was not correct, as far as I can determine, even in 2005.
The rebate brokers that I know of which were around in 2005 are still here today.
With the exception of just one brokerage, they have always had the full panel including the majors. As far as I know, the one lender that was locked in a battle with one particular broker did not cite rebates as the issue, rather training or compliance matters.
It would be nice to verify or quash the rumour one way or the other, wouldn't it? Then we can let this thread drift resolved to the bottom of the pile.
Qlds007 wrote:I am aware of several major lenders who will not accept loans from these brokers.Richard,
I think you've been misled and are perpetuating a false rumour. For the sake of setting the record straight and keeping yourself clear of the TPA, will you please add:
- The source of your knowledge
- Which lenders are you referring to and;
- Who / which companies are 'these brokers'?
The only broker named in the thread is Peach and I would be shocked if you are making a reference to them. Please clarify.
Also, what happened to Taylored Financial Solutions? I thought the updated website looked great. Are you winding that business up?
Dan42 wrote:If you took the rebates as cash, the value would be much, much less.
Gidday Dan42
Some brokers direct deposit to your loan on a monthly basis unless otherwise directed so it is as close to cash as you can get.
It's probably fairer and perhaps more accurate to say if you redraw the cash from the loan account, the interest and finance saving would be less, not the value.
If you then spent that money on 'lifestyle' the value is hard to determine.
However if you took those refunds and invested them into something with solid returns, the value could be more, much more.
Gidday Whoper123,
Yes that saving was the present value for the $80,000 saving on the sample loan.
It was calculated by Dan42 after feedback that the saving should be subject to discounted cash flow analysis, although it's fair to say that using discounting methods is not standard mortgage industry practice when making comparisons. (I'm not saying that it shouldn't be).
Dan42 wrote:What Alistair is saying is that the saving is over 30 years, so it is not worth $80k in real terms. My hurried Discounted cashflow analysis, at a rate of 8% suggets it is more like $32k in todays money.Still nice, but not as nice as 80k.
You can find that quote and general discussion on this page.
Thanks for the question and sorry for the delay in responding.
Gidday Eloi,
Sorry, you lost me…
eloi wrote:Your argument is tottally thoughtless. Without the commissions brokers get there would be no brokers thus there would be no better deal for borrowers.My argument was that commissions should continue which is why I wrote that…
mortgagedetective wrote:I don't agree that commissions should be done away with
It was Greg that stated commissions should be done away with and I also agreed that Greg's model was heading in the right direction along the lines of borrowers agents. Although I support the borrowers agent model, I don't think there is a single model/answer and they all should be able to compete for the consumers business. Just like I believe rebate brokers should be allowed to exist alongside retail brokers – which is where this thread started.
I firmly believe the more models there are in the market place, the more choice is available to consumers and certainly lender paid commissions promote that diversity.
If I've misunderstood something, please let me know.
AIF QLD wrote:My first question to you all is how do you value great advice?.Good question Trent and this is one of the points I raised somewhere way back in the beginning!
AIF QLD wrote:Personally i feel broker commissions should be done away with altogether and a service fee should be charged instead. Just like an accountant, solicitor, plumber, electrician etc that way you have the fees disclosed upfront..I don't agree that commissions should be done away with in any form as they do give consumers access to service they may not be able to otherwise afford and, if consumers use a refund broker they can also access these commissions for savings (especially those brokers sharing trail commissions).
Your idea of a fee for service model is a good one and already in existence in the mortgage industry by way of borrowers agents, it's just not as widespread or well known at this stage, however as professionals like yourself start to realise the commission conundrum and become determined to do something about it, then that will change over time.
Borrowers agents do not take commission and if they receive it, they simply pass it back to the borrower 100%. Now that's what I call a mortgage professional.
Gidday,
For those who are mildly curious, I have now sourced the most reliable indicator (remembering it is all statistics) and that number is 6.2 years.
The source is Fujitsu Consulting and the official statement is:
"Fujitsu maintains a marker model for the Australian Mortgage Industry which tracks consumer behaviour across the sector. The average life of a mortgage relationship is currently 6.2 years, and the average period between refinancing events is 36 months."The statistic is not published publicly by Fujitsu, however I have verified it with Martin North.
Thanks for all the input, it will be interesting to see how each of the refund home loans models rank on the shorter term.
Just a quick note of clarification on the MFAA's estimate of 4-5 years, I now have an informal response from Phil which explains that the estimate:
"… was based on info from lenders. However bear in mind that lenders classify each refi internally, or pay out for a refi elsewhere, or often changes to loans as new loans so this brings the average down. It does not intend to imply that most loans are repaid in 4-5 years."
The upshot of this is that the MFAA believes borrowers change loans on average every 4-5, (i.e. switching from variable to fixed etc) but not neccesarily lenders, which is, for the most part, what needs to happen for refund home loans to earn another commission to refund.
Do any brokers reading this forum have any idea which lenders will pay upfront for an internal refinance?
My understanding is that upfront is only paid where there is an increase in loan amount and that commission is only ever based on the amount of the increase, NOT the whole amount.
Thanks also for the MFAA reference. This seems to fit better with Spiro’s experience at least.
I’ll double check with Phil and see where they get that stat from. Sorry I didn’t think of him in the first place! I can’t see the forest for the trees sometimes.
Gidday Dan,
Thanks for the pickup, fat fingers on that one. The percentage is 0.5% or one in two hundred or 50 in 10,000.
My instinct tells me that their churn rate is low because their approach is so radically different to the mainstream lenders and brokers.
Which brings me back to my original post and that is, does anyone have a reliable stat which is more in the norm?
Thanks Spiro,
Your insight is excellent. Do you have an age and source for the 3.5 year statistic?
It’s seeming more like an urban myth based on the broker stats I mentioned and your own portfolio.
Does anyone have any suggestions of other forums or sources where I might be able to get to the bottom of this?
Thanks Terry,
Another broker has provided me their book data ($b) in operation for 8 years which shows less than 0.05% of their book refinancing within that time. Of those that refinanced, the average life of loan was still closer to the 5 year mark, which means their moving average is more like 7.98 years and growing.
I would imagine that those chasing better deals (price) every few years would be getting into loans with DEFs and on that basis would have a minimum switch + re-establishment cost of say $1,500 (assuming no LMI). This means @ $350,000 they would have to squeeze a rate reduction of say 0.13% p.a+ just to break even. If they could do that every time, it makes you wonder why they started with such an expensive option in the first place.
I also imagine that in many cases, equity can be tapped for a lower cost with the existing lender than switching, especially if LMI is involved.
Nonetheless, this is all speculation based on one brokers stats. It would be great to be able to factor in your experience as well.
It would be useful to know what % of your book has refinanced in the last 9 years (email me for confidentiality if required) and what the average life of loan was for those refinancers.
Thanks for taking the time.
Thanks God of Money,
What is it that drives such a short finance cycle, is it simply that you have a buy/sell cycle or is there something else happening that triggers refinance?
Thanks CRJ,
Do you keep returning to 0 equity? What's behind your strategy to keep re-establishing new loans?
Can you also tell me the source for your 7 year stat? I'm pretty shocked by that one too.
Thanks again,
Gidday Terry,
What a coincidence, I have actually used that exact analogy in my book!
However with brokers it's more like you’re paying the Prosecution who is bribing the barrister who is meant to be defending you. Add to that the question of whether they are even qualified to offer that advice in the first place and well….
It seems we agree that if you are going to get advice, you should pay the right professional to do the right job.
So the smart solution is to use an IFAAA financial advisor to manage your risk and financial plan; a borrowers agent to structure and shop, then a broker paying mortgage rebates to cover your costs of professional, pro-you advice. All in all that would take about 30 mins extra of your time, you get professionally apporopriate advice and triple the professionals to sue or complain about if things go wrong. All for well less than you'll pay through a retail mortgage broker.
You can then use mortgage rebates to cover the costs of pro-you, not pro-broker advice. Getting the right advice would hardly put a dent in the $31,000 p.v. savings you will get from mortgage rebates.
Protect your interest!
Michael Lee
