How to choose a mortgage broker
Ten years ago there are only a handful of mortgage brokers in Singapore. Today, you will be able to find more than 20 brokers online and they are still expanding. Some are setup by ex-bankers, estate agents, insurance agents and entrepreneurs. With so many choices, how do you choose?
What are the roles of mortgage brokers?
Traditionally, banks sold their mortgages typically in their own branches. They will rely on walk-in and calls for mortgage leads. Starting sometimes in 1997s or earlier, as show flats start to get popular, it becomes a norm for mortgage bankers to visit show flats and canvass for leads from buyers and property agents.
Shortly after 2001, mortgage brokers start to become one of the intermediaries who refer mortgage leads to banks. They are usually paid an introducer fees for their services.
They are different levels of services that a mortgage broker will provide. Much depends on the banking regulation and the brokers’ depth of knowledge, business strategies and liabilities. Some of the services will include:
- Collecting borrower’s information
- Comparing mortgages
- Recommending a mortgage package
- Gathering all needed documents for application
- Submitting all the materials to the bank
- Recommending a conveyance lawyer
Do you need a mortgage broker?
In Singapore, the Monetary Authority of Singapore (MAS) has very clear rules on mortgages. Things like Loan-To-Value (LTV) ratio, Debt Servicing Ratio (DSR), maximum tenure, developer’s rebates, legal fees rebates are strictly enforced by banks.
Since 1st Oct 2009, the Law Society of Singapore has decided to get rid of its conveyance fee guidelines. As such customers can now appoint their own lawyers and freely negotiated the legal fees. Alternatively borrower can use the bank’s appointed lawyer to complete his conveyancing transactions.
Compare to countries like Australia and USA, there are fewer mortgage packages to compare, and the features are almost similar. Getting the banks to present a mortgage plan will just take a few phone calls or clicks on your internet browser. If you are IT and money savvy, there is really no need for you to engage a mortgage broker.
What are the pros and cons?
Shorten your search. Example, a broker may be able to help reduce your searches from 6 banks to 2 banks.
Pre-approval advice. Some mortgage brokers can help you assess your financials before your apply to a bank.
Free. The service is free of charge for borrowers. Brokers are paid a referral fee (commission) from the bank.
This commissions-based model often gives rise to a conflict of interest since commission differs from bank to bank. The amount of commissions may take precedence over suitability when a broker suggests a product to her clients. (MoneyIQ.sg uses a direct to bank model to stay independent and objective in our comparison)
Not regulated. The mortgage advisory industry is not regulated. Some brokers may not have the right financial knowledge. Although there are associations that certified mortgage advisers, it is not a regulatory requirement. Always remember that mortgage brokers do not represent the banks. The credit assessment and letter of offer is generated by the banks, as such sometimes it’s better to deal with banks directly.
Data protection. Some brokers will collect sensitive information like salary slips, copies to NRIC to help borrowers in their submission. Brokers are not regulated by the Banking Act or Financial Advisors Act. As such, they do not have a contractual duty of confidentiality. Before handing your documents to a broker, ask them how they safe keep your documents, how long are these documents kept and who have access to these documents.
Cross selling. Some mortgage brokers cross sell or include services like mortgage insurance and conveyancing. Make sure you check the services and compare the prices.
Making an informed choice
In summary, before you choose a mortgage broker. It’s advisable to do some background check.
- Ask for reviews from your friends. Do not just read the testimonials on the website.
- Check their operation
- Ask them what are the information they are collecting? Are they allow to do so? What are they going to with the information after the deal is completed?
For free mortgage comparison, please visit https://moneyiq.sg