Securing your mortgage, or refinancing an existing mortgage, generally involves visiting the various banks and seeing what they can offer you in terms of the size of the loan, the maturity of the loan (when the loan is due), interest rate, and the method of paying off the loan.
A mortgage broker, however, acts as an intermediary between an individual or business and a bank and attempts to broker a loan for them.
A good mortgage broker, says Ally Yang, chief mortgage consultant with Home Loan Singapore Pte Ltd, will look for the most suitable home loan package based on both the clients’ need and the plan of their home loan.
They should also help customers with ‘special situations’, such as overseas buyers who are self-employed with their own companies, to get the maximum financing, or refinancing in the case of a second mortgage.
After a ‘lock-in period’, the period of time when a customer cannot close their home loan account without paying a penalty, the mortgage broker, says Yang, should then help clients to review interest rate packages.
However, why not deal directly with a bank, rather than using a middleman?
“The key to a mortgage broker,” says Derek Tan, mortgage broker with FinVantage Loan Solutions, “is unbiased recommendations. Bankers are sales persons. I have not met a banker that would tell you ‘Bank X offers a better package; you’re better off signing up with them.’
He added that a mortgage broker will also save time and energy, coming to you, rather than you spending between 15 to 90 minutes waiting at the major banks in town.
However, Yang believes that an experienced broker can offer comparison and analysis of the whole home loan interest market, allowing the client to make an informed decision.
Mortgage brokers are an institution that is fairly new to Singapore but is established in North America and the USA. The industry is not under direct governmental regulation, but as Tan explains, all banks in Singapore are regulated by the Monetary Association of Singapore (MAS) and mortgage brokers are required to sign a Letter of Agreement with respective banks to ensure they do not misrepresent them.
While the mortgage brokers’ fee will be paid by the bank that approves the loan, securing a mortgage loan involves some costs, as Tan explains below.
For the purchase of a new home:
- Stamp Duty (a tax on executed documents relating to properties) for IRAS.
- Legal fees for lawyers (banks will provide a subsidy, but if insufficient, client will have to bear the difference).
For refinancing of a mortgage, there are many variables:
- If client is within a reimbursement period of his current mortgage, he will have to reimburse the bank with the initial legal subsidy should he choose to refinance.
- If client is within a lock-in period of his current mortgage, he will be penalized with 1.5% of the outstanding loan amount and also reimburse the bank with the initial legal subsidy.
- If client is neither within the reimbursement or lock-in period of his current mortgage, he is free to leave the bank. However, getting a new loan will incur him a new set of legal fees (for which, again, the banks will provide a subsidy, but if insufficient, client will have to bear the difference).
Ally Yang gives us three essential questions to ask a mortgage broker.
- How many years he or she has been in the mortgage broker industry? A mortgage broker relies on their relationship with and network of bankers to get the most up-to-date interest rates movements. The more experienced and connected they are, the better.
- Are their major clients buying private or HDB property? There are different regulations for purchasing each and it makes sense for your broker to be familiar with them.
- Is the mortgage broker’s fee being paid by the bank? The client should make sure whether or not they need to pay for the mortgage broker’s services.
Source: i-Property, 21st Nov 2010