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Andrew thought he couldn't afford a home...then he saw a mortgage broker

March 31, 2019

Meet Andrew. He is 25, married to his childhood sweetheart and, by his own admission, isn’t exactly what you would call financially savvy.

‘I’ll be straight up with you…’ says Andrew ‘I’m not really a “money” guy. In fact, my money-managing is generally so poor that it’s not uncommon for me to stray dangerously close to an aneurysm when paying by card, so frequent are the “Declined – see bank issuer” messages.’

Andrew has worked as a tailor, a barista, an industrial cleaner, a construction-hand and a funeral musician (yep, really). Although he is by no means raking it in now, he has been able to put a little bit away each week since starting full time work. Needless to say, with such an eclectic working history he always thought owning property was out of his reach.

‘Although we were starting to put away more and more money, I still associated buying a house with something only “adults” did. As someone who regularly wears odd socks, forgets to take money to the supermarket and has been known to drive to the airport sans-passport, one could surmise that I struggled with this thing called “adulting”’

Mortgages aren’t just for ‘adults’

That perception changed when Andrew and his wife, Rose, attended an information night hosted by Independent Property Management where Mark Edlund from Clarity Financial Group gave a presentation for first home buyers.

Like a lot of people, Andrew has always associated mortgage brokers with dodgy back-door deals; perceiving them as sharks who fed on those in crippling debt to a bank for their own benefit. The actual role of a mortgage broker, though, is in stark contrast to these unfair stereotypes.

‘As we sat at the back of the 80-strong audience in attendance, we did the sums and crunched some figures on the spot, discovering that we were potentially already in a position to get our foot into the property market’

The next step, according to Mark’s presentation, was to go and see a mortgage broker, and seeing as the meeting was obligation-free and more importantly, free, Andrew and Rose booked an appointment.

‘Before our appointment, I received a call from our broker, Rob Garth, who required some preliminary information before we met. I laid down each of our salaries and contract types, our savings, our current rental repayments and our property goals.’

Rob then emailed them a selection of documents, including a Client Information Form to complete and return with their financial and personal details, a Credit Guide outlining exactly what would be involved in taking out a loan and a Document Checklist with what they needed to bring.

Andrew and Rose arrived at the clarity office ten minutes before their meeting. Understandably, both were nervous, but Rob made them feel comfortable immediately.

‘Rob walked straight up to us, and I was instantly impressed by his no-fluff, direct approach to his work. In his opening spiel, he took us through exactly what the role of a mortgage broker was, which up until that point, was something that still eluded Rose and me’

So, how do Clarity’s mortgage brokers work?

1. Clients don’t pay Clarity mortgage brokers a cent for their services;
2. Clarity mortgage brokers get paid the same amount regardless of which bank/mortgage their client chooses – this means brokers have no incentive to promote one plan over another;
3. Clarity mortgage brokers can negotiate interest rates with nearly any lender their client chooses; and
4. Clarity has over a 99% chance of getting a client’s loan application approved, simply because they won’t apply if they think there’s even a small chance it will be rejected.

Mortgage brokers vs. banks

It’s important at this stage that you understand the role of a mortgage broker. To apply for a home loan, you can either go directly to the bank or go to a mortgage broker.

At the bank, you’ll probably be missing some of the necessary documentation, you won’t have access to special discounts and the bank doesn’t care whether you’re successful in your application or not.

A mortgage broker only gets paid once you’re successful in applying for a loan, so they have a vested interest in your successful application. The benefits to this setup are two-fold: they won’t even apply to the bank if you’re in any doubt of securing a loan, and they have access to better discounted interest rates, saving you heaps on repayments over a 30-year period.

With a mortgage broker, you’re still borrowing money from the bank, but the entire application process is performed by the mortgage broker on your behalf. Essentially, from a borrower’s perspective, a mortgage broker provides a free service and has a higher chance of securing a better loan at a lower interest rate.

The dream of a buying a home becomes a reality

‘Once Rob got to crunching the numbers, there were a lot of terms that we’d never heard of before, like L.M.I., L.V.R., split loans, variable loans…pretty much any mortgage-related term he said if I’m being honest. After all, we were in the absolute preliminary stages of our house-hunt, so we weren’t too fussed about being all over every financial concept instantly’

Originally hailing from Melbourne, Andrew and Rose had toyed with the idea of purchasing down there, with the intention of moving straight into their own place when they eventually returned.

‘Rob quickly calculated that, factoring in the increased stamp duty for an investment property rather than an owner-occupied property, we’d need around an extra $27,000 to pump into the deposit, as the stamp duty for an investment property is non-deferrable in Victoria.

'So instead of a deferred stamp duty payment of ~$13,000, we’d be looking at an upfront cost of ~$27,000…our decision to NOT purchase in Melbourne had been made for us.’

When asked what sort of price range they had been looking in, neither Rose or Andrew had any meaningful concept of what they could afford. So, Rob got to doing the sums.

‘From the paperwork we’d already completed and knowing our monthly living expenses, Rob could easily calculate our borrowing capacity and repayment capability.’

Andrew and Rose were then told they could make an offer on any house up to $500,000 with no qualms whatsoever. This was a huge revelation for them both.

And that was it.

‘We had seriously thought we were years away from buying a home. It was a dream for another time and would have stayed a dream if we hadn’t made that first, free, baby step towards home ownership – visiting a mortgage broker. Now the dream is a plan. Watch this space’

*Independent is not a financial advisor. The information contained is for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before making any commitment of a legal or financial nature you should consider the appropriateness of the information having regard to your circumstances and needs and seek advice from a legal practitioner or financial or investment adviser.