How to find a mortgage

how to find a mortgage

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So you've decided to tap into some professional services to help manage your financial matters. Zoë Fielding suggests some questions that will make sure you form a fruitful relationship with your chosen provider.

It's hard to know where to start when you're looking for a provider of financial services. There are so many horror stories of dodgy planners, banks that rip you off with hidden fees and insurance companies that charge a fortune in premiums and won't pay out when it comes to the crunch.

Good news stories often go unreported. But there are plenty of people who have excellent experiences with their financial service providers. Often all it takes to make sure you walk away smiling is to ask the right questions at the beginning.

So read on for some suggestions to help you get the best out of the professionals you do business with.

Know your money managers

Financial planners and accountants

These disciplines are very different and many larger practices employ experts in each area. Some accountants are licensed to provide financial advice and some financial planners have accounting qualifications.

Here are a few questions you could ask both your accountant and financial adviser, plus others that relate specifically to one or the other.

1. Qualifications and experience?

The more the better, really. Accountants must have a degree and they also undertake continuing education each year. Check whether they are members of the following professional bodies: CPA Australia, the Institute of Chartered Accountants of Australia or the National Institute of Accountants. Financial planners don't need to hold a degree, although some do. The minimum education levels for advisers to comply with their licence obligations are quite low. Look for a planner who has an advanced diploma of financial services and, ideally, one who is a certified financial planner (CFP).

2. What are your areas of speciality?

Check whether the accountant or adviser has expertise and qualifications in the areas you need help in. Accountants can assist with everything from completing tax returns to setting up a family trust. Advisers might focus on retirement planning, insurance or a range of other areas. You'll probably get better advice from someone who targets clients like you and spends most of their time advising on the topic that you're interested in. Specialist qualifications are also helpful.

3. Who'll provide advice on topics you don't cover?

If you need advice in an area outside an accountant's or adviser's area of knowledge,

then any professional should be able to refer you to someone who can assist you. These may be people in their own practice or someone from a separate business. It'll make your life easier if your accountant, adviser and solicitor can all work together when necessary.

4. How and when do you charge for your services?

Accountants may bill by the hour, or charge on a job cost or retainer basis. Financial planners are moving in this direction too, although commissions and fees calculated as a percentage of the assets they advise you on remain common. In April, Financial Services Minister Chris Bowen announced financial planners would be banned from taking commissions on investments from July 1, 2012. Life insurance policies are excluded and commission is the most prevalent charging method for these products. Whatever the model, you should be able to negotiate how, when and how much you pay. Make sure you understand what's included - will you be charged for phone calls and travel time, for instance? And ask if commissions can be rebated to you. Expect to pay even if you don't act on the advice. If you don't have to pay for the advice, chances are you're being sold a commission-paying product.

5. Can you provide a reference?

A good way to find an accountant or financial adviser is to ask friends and family for recommendations. If no one you know can offer suggestions, try the professional and industry bodies' websites. The accountant or adviser should be able to refer you to an existing client for a testimonial - take this with a grain of salt though, as they'll hardly let you call a disgruntled client.

6. Complaints handling processes?

The business should have internal complaints management channels and be a member of an external dispute resolution scheme such as the Financial Ombudsman Service. Members of professional bodies are bound by codes of conduct, and disciplinary mechanisms deal with those who break the rules. Check that the accountant or adviser has professional indemnity insurance. If something goes wrong and you are owed compensation, there's a better chance you'll get it if the business is insured.

7. Who will be my main point of contact?

Your first meeting with the accountant or adviser will probably be with a senior team member. You don't want to be palmed off to a junior member of staff as soon as you've engaged their services. Juniors can handle administration, but for detailed questions make sure you have access to the person you first met.

8. What level of service should I expect?

Avoid frustration by setting expectations in advance. Understand how long the work will take to complete, how quickly your calls will be answered and how often your case will be reviewed. Planners must provide a statement of advice document outlining their recommendations and services. Members of professional accounting bodies must issue a letter outlining the terms of the engagement.

9. Practice size and ownership structure?

Practices vary in size from those with a single professional to huge networks with hundreds of members. Each model has its pros and cons. For financial planning, in particular, it is important to find out who the financial backer or licensee is, as this could influence the range of products the planner recommends.

PICKING THE PLANNERS

here are some questions that relate specifically to advisers:

What processes would you use to make sure you understand my goals and risk profile?

The top issue that leads to litigation against financial advisers is a mismatch between the client's risk tolerance and their portfolio. You want tailored advice, not cookie cutter recommendations.

Advisers should be able to explain how they will learn about your goals and risk appetite, says Peter Bembrick, a financial planner for the Sydney-based financial advisers, Centric Wealth. This should not be based on gut feeling. They may ask you to complete a basic questionnaire or a sophisticated psychometric test that will help them assess how you would react in different situations.

Do you provide advice on your clients' full financial situation including existing assets, debts and investments?

You probably want help with your full position but many advisers will limit the assistance they give to new investments or superannuation. In many cases, the best advice may be to pay down your home loan. But there's no commission in that for an adviser so it might be overlooked. Make sure you know what you're getting.

How do you research the products

you recommend?

The investments are what will make or lose you money so the research behind recommendations is important. Bembrick says best practice would be to have in-house investment specialists analyse both primary research and information bought from external sources.

FINDING THE BEST BEAN COUNTERS

And here are some questions you should put specifically to an accountant before you decide to give them your business.

Can you offer tax advice and complete my tax return?

Only registered tax agents can provide tax advice and prepare and lodge your tax return. Financial planners can give limited guidance on tax issues that relate directly to superannuation and the investments they are advising you on. But for specific tax advice, they'll have to refer you to a qualified tax agent.

What access will I be given to the data you hold about me?

CPA Australia suggests using your accountant to keep track of your financial records. The accountant should be able to provide you with the information that they hold in your file within a reasonable time frame if you request it.

Look behind the policy

Insurance provider

Your relationship with your life insurer is unlikely to be close but it will be long term. Premiums will cost you a considerable amount over the life of the policy and if you need to claim, you'll expect top-quality service and support. Before taking out a policy, check the provider's credentials. These questions will get you started.

1. Who backs you and what is your financial strength?

It's not always obvious who is behind an insurance policy. Gerard Kerr, the head of product and marketing for life insurance for the financial services provider ING Australia, says some companies "white label" other companies' insurance products. That is, they sell them under their own brand, so it's unclear who is taking on the risk.

The bottom line issue is this: will the company insuring you still be around if you need to make a claim 20 years from now?

2. How volatile are your premium rates?

Expect premiums to rise over the policy's term due to factors such as inflation. But if there are wild swings in the cost, that could indicate a problem with the sustainability of the company's practices.

"They might introduce a liberal benefit that wins them market share," says Sean McCormick, the general manager of advice product for MLC Insurance. "But then

they might find that when people claim they have to put up the premiums."

3. How often do you upgrade or close off your policies?

Life insurance products are being improved all the time but some companies only extend upgrades to new customers.

Insurers may close off policy series rather than raise premiums for products that are giving them grief when more people are claiming than they expected. Raising premiums would encourage customers to start cancelling policies. Enhancements won't be passed onto old products. So you could be stuck in an out-of-date policy that doesn't cover you as well as other products might.

4. Do your products contain a claims reduction clause?

These are well-known in the life insurance industry but you certainly don't want one in your policy. Claims reduction clauses are usually tucked away in the fine print. They introduce a grey area into the insurance contract. That may allow an insurer to avoid paying your claim or reduce your benefit if they believe you can do - or earn - more than you say you can.

5. How often andhow much does the company pay in claims?

While all insurers will try to dazzle you with their statistics if you ask them this question, big numbers can give you an idea of the scale of the company you're dealing with. Measures like the proportion of claims paid compared with those made give clues about how likely

you are to be paid if you need to make a claim. Don't expect 100 per cent payout rates.

6. What kind of clients do you target?

It will be comforting to know that the company has paid claims made by policy holders who are broadly similar to you in age, health and profession. Some insurers specialise in covering people who work in particular industries and hazardous roles, such as miners, police officers and security guards, who might otherwise find it difficult or expensive to get insurance.

7. Are there packaging opportunities?

You may get a discount for taking out two or more policies. This could apply to an individual taking out several kinds of cover with the same insurer or to family members or business partners with related policies.

8. What additional services are available with the life insurance policies?

Simply put: what can I get without first having to die or get sick? Aside from the basic policy terms and conditions, life insurers are starting to offer services designed to keep you fit and healthy (to reduce the risk you'll make a claim). These sweeteners should not be the main reason for picking a policy. But if it's a close race between two providers, they might just tip you one way or the other.

9. How flexible are your products?

So that you don't have to start all over again at some time in the future, find out whether your policy will let you increase your cover later on if you take out a mortgage or get married and have kids. Also check if there are alternatives to letting the policy lapse if you find yourself struggling to pay premiums. You might be able to extend the waiting period on an income protection policy, for example. It's also useful to have a choice of stepped premiums (which rise as you get older) or level premiums (that are not linked to your age). A level premium on a long-term policy like income protection insurance can save you tens of thousands of dollars. Stepped premiums may be cheaper for shorter term policies.

lessen the legwork

You don't have to use a mortgage broker, but they can take some of the legwork out of identifying the best deals and applying for a home loan.

A good broker will be able to guide you through the process of taking out a mortgage and give you tips on how to manage your debts. They will also chase the paperwork and liaise with the lender so that you don't have to sit in phone queues.

But before you decide on a broker, think about asking these questions:

1. Are you licensed by ASIC to provide credit advice, or registered for a licence?

Mortgage brokers must be either licensed or registered with the corporate regulator to apply for a credit licence to be allowed to operate.

2. What experience do you have?

As with other service providers, you should assess the broker's credentials before deciding whether or not to take their advice. Brokers help people apply for the biggest loan they're ever likely to get, so make sure you have confidence in them.

3. If I have a complaint about you, what procedures are in place for resolving this?

Like other service providers, brokers should have internal processes for handling complaints. Under the incoming licensing regime, they must be members of an external dispute resolution body, such as the Credit Ombudsman Service, which gives an additional source of redress.

If the broker is a member of the Mortgage & Finance Association of Australia you can complain through the association's disciplinary system, which includes a tribunal that can suspend or expel members. Also check on whether the business holds professional indemnity cover.

4. What are your fees and commissions?

Good brokers will be happy to tell you what commissions they get. They may receive initial payments of about 0.6 per cent and ongoing commissions of about 0.2 per cent a year.

All brokers should disclose this information if you ask. In some states, or if the broker is a member of the MFAA, they are required to tell you. You won't have to pay the broker as the commission covers their service but it could influence their recommendation. Other costs might include lender processing fees and government levies.

5. How many lenders do you have on your panel?

Most brokers are accredited to recommend products from at least 10 lenders – although there are many more financial institutions than that in the market. If the broker's list is much smaller, you risk missing out on the best product.

6. Whose loans do you offer and why?

Some mortgage brokers, like Aussie Home Loans, also act as mortgage managers – or non-bank lenders – so they can directly provide you with a loan as well as recommending other lenders' products. This should not bias the final recommendation but it will influence which loans are on their panel to begin with. Some loans aren't sold through brokers, so compare deals available directly as well. Look on websites like ratecity.com.au and infochoice.com.au

7. Why are you recommending this product?

The broker should be able to explain why any recommended mortgage would suit you. If you don't accept their reasoning or if you don't understand, seek a second opinion. The broker should be able to offer alternatives if you have a reason for not wanting to deal with a certain provider.

8. Can you rebate some of the commission to me?

Not all brokers will do this, but it doesn't hurt to ask.

9. What service can I expect from you after I have taken out the loan?

The broker will receive a trail commission for the entire time you hold the loan that they signed you up with. So make them work for their money. Brokers should be able to help you review your loan and give you tips on how to manage your debt but they can't give you financial advice – you'll have to see a licensed financial planner if you want specific assistance.

More bang for your buck

Lenders

The days of putting on a suit to go meet the bank manager are long gone, although two of the big four banks, ANZ and Westpac, have been emphasising their personal touch in recent campaigns. Depending on what kind of service you're after, you may even never have to go into a branch. You might not do business with a bank at all. Credit unions and non-bank lenders offer competing products. Regardless of where you go, here are things to investigate.

1. Who owns the provider?

The big four banks are listed on the ASX and are accountable to their shareholders but you might be surprised to find that some small lenders and account providers are also owned by the majors. To name just a few, National Australia Bank owns the online financial institution UBank and the mortgage broker Homeside Lending. Commonwealth Bank owns the smaller financial institution BankWest and a third of the mortgage company Aussie Home Loans. Westpac owns two smaller banks - St George and BankSA - and the mortgage provider Rams Home Loans. Credit unions are owned by members and run as not-for-profit organisations. Other financial institutions, like Citibank, are owned by foreign financial services companies.

2. How accessible are your services?

A user friendly website is a critical part of banking these days. You'll want to be able to see your financial position quickly, pay bills and transfer money between accounts. If you have to pay fees for using other banks' ATMs, the location and number of machines that your financial institution has will be important. And if you prefer to see someone in person, look at branch locations and opening hours.

3. What revert rate will be used after the promotional honeymoon period or term is over?

You might sign up for what seems like a great deal only to be left with a terrible rate after the promotion has ended. Banks rely on inertia to hold onto your business once you've opened an account. If you allow a term deposit to automatically roll over, you're unlikely to get as good a rate as when you opened the account. Mortgage providers sting borrowers with interest rates reverting to the standard variable amount when the honeymoon is over, so to speak. Shop around when the initial deal or term has ended.

4. Do I need to open a linked transaction account to hold other products with you?

Watch out for offers that give you a good deal on a fee-free high interest savings account but slug you with sneaky charges elsewhere. Similarly, a great low-rate mortgage might lock you in with a substandard transaction account. Check the features and costs of all products you'll be getting before you sign up.

5. Do I get a discount for packaging products?

Lenders may offer home loan packages with reduced interest rates, fee-free transaction accounts and cut-price financial advice or insurance. There's often an annual fee attached to these kinds of deals but savings elsewhere may offset the cost - if you use the other services. Some credit unions give customers free transactions based on the total balances of loans and deposits they hold. As with any deal, check whether the benefits outweigh the costs.

6. If new offers are introduced will I get the benefits too?

It's common for financial institutions to advertise special savings rates that apply only to new customers. Home lenders may also offer discounted rates to attract new business. Don't expect the good deals to automatically be extended to existing customers.

7. What are the fees and how can I find out more about them?

Fee-free transaction accounts are available but no matter what account you have, be wary of unusual or hidden charges. There may be fees for overdrafts, replacement of lost or stolen cards, overseas transactions, duplicate statements and other special services. If you pay your mortgage off in full before the term is out you may have to pay deferred establishment fees, which can run to tens of thousands of dollars. Information about the fees should be easy to find on the institution's website and in disclosure documents.

8. What education and information services do you provide?

Financial institutions should be able to help you understand your options. They may issue information brochures that explain how various products work and give you tips on how to minimise fees, manage your mortgage and plan your finances.

9. Who are your target clients?

Banks and other lenders specialise in serving certain types of customers. It's unlikely you'll be turned away if you don't fit their criteria, but it might affect the service you receive if you're not in their priority group. Si

Source: www.afrsmartinvestor.com.au

Category: Credit

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