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8 Questions to Ask Your Finance Broker in Australia

24/10/17

Technology trends come and go but one thing guaranteed to continue giving returns is land. Owning property on that land provides a reliable form of income.

1 in 5 Australians own investment properties, a figure that has increased by 3 percent since 2015.

But when you want to invest in property, it makes sense to use a finance broker in Australia. They understand local issues as well as policies specific to this country.

If you’re preparing to borrow a loan you don’t want to miss these 8 questions to ask your finance broker in Australia.

Here are 8 questions you need to ask before you leave their office.

1. Which Type of Loan Is the Right Choice?

There are no ‘one size fits all’ loans so gather all of the information you can about which loan you need. Will it be a;

  • Fixed-rate loan
  • Interest-only loan
  • Negative-amortization loan
  • Adjustable-rate loan

All of these loans come with pros and cons depending on what you want to borrow. Any finance broker in Australia will look at your specific situation before giving advice.

Your lifestyle will also impact on which loan you take. Account for all of your outgoings (such as membership fees, household costs, other repayments) to check you can afford repayments.

2. What Is the Interest Rate?

Your interest rate will vary based on the size of the loan and your credit. It determines how much you repay per month.

Smaller loans, or loans with lower interest rates, mean smaller repayments. Starting with a higher level of savings can help lower the size of the loan you need.

You may feel the interest rate is too high. If the broker will not budge on the rate, work to improve your credit rating, then you can access lower interest rates.

Check your credit score before you speak to your broker. You can also check whether any defaults on your credit report might affect your ability to get a loan.

3. What’s the Annual Percentage Rate for the loan?

An interest rate and an annual percentage rate (APR) are not the same thing.

Lenders divide the interest rate and other related fees by the term of the loan.

It’s difficult to accurately calculate the APR for adjustable loans. They also don’t take early payoffs into account.

A finance broker in Australia will take this into consideration when working out your APR. They can also work between lenders to get you the best deal.

4. What Other Costs Are Involved?

You should ask your broker if they charge a brokerage fee for getting your loan approved. But remember that you’re not just paying fees to the lender. You’re also paying fees to third-party vendors.

That includes;

  • Taxes
  • Credit reports
  • Escrow (if applicable)
  • Title policies
  • Recording fees
  • Pest inspection reports

Your broker should give you an estimate of these fees before you settle on a loan.

One-off fees also become due at closing. Called ‘points’, a lender reduces your interest rate by 1 percent for every point paid.

You may be able to pay higher interest rates in exchange for no closing fees. It depends on how much you want to pay now, rather than during the loan’s lifetime.

4. How Much of a Deposit Do I Need?

Deposits to secure loans vary, depending on the type of loan.

Say you need a loan to invest in a $200,000 property. You already have $50,000 as a deposit. The loan-to-value ratio would be 75% since you already have 25%.

The higher the ratio, the lower the deposit required. But the more of a deposit you pay, the less you repay in the long run.

You may even access lower interest rates. Having more of a deposit means you’re less of a borrowing risk.

5. Is a Loan Rate Lock available?

Interest rates change on a daily basis. If they go down, that’s great news for borrowers. But if they go up?

Ask if you can lock your loan before you complete the process if you worry about interest rates rising during the process.

A finance broker in Australia will tell you if you’ll incur any fees to lock the rate. You may need to pay points to secure the rate. They’ll also let you know what the lock-in protects and how long it lasts.

Make sure you get the lock in writing.

6. Does the Lender Approve Loans In-House?

Lenders pass on loan requests to underwriters. They approve or reject the requests following a review of the application.

Ask your broker if your chosen lenders do their own underwriting. If they do, accessing your loan should be a faster process.

You can always select the lender with the shortest processing time if you’re working to a deadline.

7. Will I Incur Penalties for Paying Early?

Paying off a loan ahead of time sounds like an easy way to save money. The earlier you pay, the less interest will be due.

Some lenders may charge penalties for paying loans early. After all, they’ll lose money in the long term from the interest you won’t be paying.

Check if your loan includes these penalties before you save up to make extra early repayments.

8. Do You Have References?

Does your finance broker have plenty of experience? It’s a good idea to check. Ideally, you want a broker who has seen the lean times as well as the good.

Finance brokers should be happy to provide references or testimonials from other borrowers. They may put you in touch with past buyers.

If you speak to two or three, check how they were treated by the broker. Ask them if their figures were accurate. Find out if they would use the broker again.

Repeat customers are a good indication that your finance broker is a trustworthy expert.

It Makes Sense to Use a Finance Broker in Australia

The answers to these questions should be specific to the country you’re in. So use an Australian finance broker to deal with Australian issues.

Vystal Properties understand the domestic market so the answers you get will apply to your specific situation.

Do you have any other questions not on this list? Feel free to get in touch and we’ll be glad to help.