10 Questions to Ask Your Mortgage Broker or Bank
How much can I borrow?
Ask the broker to provide an estimate of your borrowing power, in other words, how much the banks will be willing to lend you. This is an important first step in your property investment decision, and is critical to know before you start looking for property.
How much deposit will I need?
The broker will be able to advise you how much deposit you would require given your potential mortgage size. Speak to them about whether it is in your interests to have a larger deposit or not – they may recommend you delay your purchase until your deposit is larger.
Which loan best suits my needs?
Ask them to recommend loan products that suit your specific requirements. Ask them for a shortlist of two to three products from different banks/finance companies, and be sure to write the product names down so you can do more research yourself online
Remember that there is a lot more to a loan than just the headline interest rate, although this will obviously be an important consideration. You will also want to know about, for instance, the products' fees and charges and access methods.
Will I need lenders' mortgage insurance (LMI)?
Ask your broker to explain lenders' mortgage insurance and whether you will need to pay it in your particular circumstances.
In some cases you can add this cost onto the sum borrowed, so check with your broker and ensure you understand how this will work. Also understand implications of the size of your deposit on the LMI calculation, as generally speaking, the larger the deposit, the less LMI you will pay.
What will my repayments be?
Ask the broker what your repayments would be given a particular loan size at a particular interest rate. You need to be comfortable that you can afford to make the repayment each fortnight/month.
You may decide that based on the repayment amount, you don't want to borrow as much as you are able to, so consider looking for less expensive properties.
Should I get a fixed or variable interest rate?
Ask the broker to explain your options with regards to fixing your interest rate for a certain period versus having a variable rate mortgage. There are pros and cons for each, which the broker will be able to talk through with you.
Should I pay interest only?
In some situations you may only want to pay the interest on your mortgage, rather than both principal and interest. Ask your mortgage broker to explain the difference and whether it is relevant in your circumstances.
What happens when interest rates change?
Where your mortgage (or part thereof) is going to be on a variable interest rate, it's important to know what happens when interest rates rise. Ask your mortgage broker to quantify what your repayment would be if interest rates were to rise 1%, 3%, or 5%.
Don't necessarily let these calculations scare you off property investment, but be aware that your 25 or 30 year mortgage term is a long time, and interest rates won't remain the same forever. Knowledge and forward planning is your best defense.
What are the fees and charges on the mortgage?
Ask for a clear indication of the fees and charges you will be liable for with the mortgage. These charges may relate to the mortgage set-up, application fees, property valuation fees, ongoing monthly fees, variation fees and break costs.
Do your maths to understand the impact of these fees and remember that sometimes a large upfront fee is going to work out cheaper than a small monthly fee.
What is the application/ approval process like?
Ask your broker to explain how the application/approval process will work, what you have to do, and how long it is going to take. Ask whether you should be getting pre-approval for your mortgage now or wait until you have found your property.