Ethics of changing brokers

[jrc77]

I have two properties with various loans secured against them all setup by my existing broker. My current mortgage broker gets paid by commissions from these loans.

I am considering changing brokers because my existing one is not particularly investment savy. She has done a really good job getting me the loans (as I am self employed, with ABN less than two years old) however I am continually having to explain how I need the accounts setup to maintain clearly defined purpose of funds and structuring things for future purchases etc (as learned from reading this site). Combined with the fact that my bank are useless at structuring things they way that they should be from a investment point of view (they always seem to do everything the worst possible way) I am concerned that my future investment journey could be damaged by poor structuring or account setups that is not possible to fix.

My dilemna is that the mortgage broker has done a good job getting the current loans - I am very happy from that perspective. If I get a new broker, what happens with the commissions from the existing loans? Are commissions paid on a per loan basis, or by account (by which I mean does the would a new broker get all the commissions on existing loans if I changed to them and opened another split in my existing loans)? How long do MB normally need to retain commissions for a loan for them to "break even" on the work for setting it up?

I am considering doing a topup on my existing loans (through existing mortgage broker) and then doing a new loan application through a different broker for my next purchase. This way I can get exposure to a new broker to decide if I want to work them going forward. Does this sound like a reasonable approach?

Any thoughts or comments are appreciated.

Regards,

Jason

 

[Rolf Latham]

Hi Jason

It Happens, for different reasons.

Sometimes I cant work with someone, and sometimes they cant work with me.

Depending on the lender and the aggregator used, the trail comm is paid per account set up by the broker.

In our business, the upfront comm from our average loan size does cover the costs with about 150 bucks profit. Our business is highly reliant on the trail income.

Having said that, a sole operators costs are usually much lower if the are writing reasonable volumes, but can also be larger if they are a low volume / part time producer.



ta
rolf

 

[bcoombs]

Don't forget clawback. If the loans are lest than 12 months they take the entire upfront back from us. So we work for free!

With regards to your problem, it may not be the brokers fault if you are calling the bank and they are not helpful. Remember the Banks set things up for themselves and are not investment property/tax savvy. However your broker should have got things organized for you prior to submission. You may not have had a choice of too many Banks with your ABN circumstances.

 

[Rolf Latham]

Don't forget clawback. If the loans are lest than 12 months they take the entire upfront back from us. So we work for free!

Good Point BC

BUT, actually its worse than that...............

Clawbacks are now going out partially to 24 mths.......

Early Clawback means you dont work for free. You actually pay to do the work because

1. Your aggregator usually doesnt give you their split back ( and that can be as much as 20 % +) when the lender claws back their comm.

2. As a business it costs money to run staff, premises, comms etc ..........I cant take my admin staff's pay from them when we get hit with a clawback.

ta
rolf

 

[wylie]

Could the original poster go to a new broker for future business, whilst leaving the existing loans already in place?

Would that mean no loss to the original broker, and ongoing business going to the new one?

 

[Rolf Latham]

Could the original poster go to a new broker for future business, whilst leaving the existing loans already in place?

Would that mean no loss to the original broker, and ongoing business going to the new one?

yup

ta
rolf

 

[jrc77]

Could the original poster go to a new broker for future business, whilst leaving the existing loans already in place?

Would that mean no loss to the original broker, and ongoing business going to the new one?

This is probably what I am going to do.

Thanks for the feedback guys.

Regards,

Jason

 

[Simon]

If your new broker insists on you refinancing your existing loans, without a good reason, then you will know that he is after maximising his commissions.

Just so you know where you stand.

Cheers

 

[Marty McDonald]

If your new broker insists on you refinancing your existing loans, without a good reason, then you will know that he is after maximising his commissions.

Just so you know where you stand.

Cheers

Good point Simon...but if the new broker tops up any of the existing loans (which may be the most cost effective method of moving forward for Jason) and the account numbers don't chnage it wouldn't trrigger a claw back for the original broker I wouldn't think.

It really depends on your proposed structure and current lender Jason. If I knew the below I could give you my opinion as to what would be best for the old broker in terms of no claw back and yourself with no exit fees etc..

Q1) Do you know how you want to structure it going forward?
Q2) What is the breakdown of current lender(s), loan amounts
Q3) Are the properties currently crossed?

Cheers,

 

[jrc77]

If I knew the below I could give you my opinion as to what would be best for the old broker in terms of no claw back and yourself with no exit fees etc..

Q1) Do you know how you want to structure it going forward?
Q2) What is the breakdown of current lender(s), loan amounts
Q3) Are the properties currently crossed?

Cheers,

Marty,

1. Paying down PPOR loan. Intend to create splits/accounts secured against PPOR for deposits for investment properties (20% of purchase + costs). New 80% loans against IPs. Avoids MI for the moment (and keeps me within LVR that I am currently comfortable with).
2. Loans all currently with CBA - four loans of varying amounts 60k, 130k, 475 and 500k. The largest has a purpose of PPOR, the others are for various investments.
3. No. The loans are not crossed (although all with one bank so the infamous "all moneys clause" may come into affect).

Regards,

Jason

 

[Marty McDonald]

Marty,

1. Paying down PPOR loan. Intend to create splits/accounts secured against PPOR for deposits for investment properties (20% of purchase + costs). New 80% loans against IPs. Avoids MI for the moment (and keeps me within LVR that I am currently comfortable with).
2. Loans all currently with CBA - four loans of varying amounts 60k, 130k, 475 and 500k. The largest has a purpose of PPOR, the others are for various investments.
3. No. The loans are not crossed (although all with one bank so the infamous "all moneys clause" may come into affect).

Regards,

Jason

Hi,

Thats all good then. Sounds like you intend to do a "new loan" for the deposit and costs and a "new loan" for the 80% LVR agsinst the IP's. That way the old / current broker keeps her trail on the loans she has done for you and no claw back issues.

If you do decide to top up any of the current loans with CBA you can do a "principal increase" and retain the account number which means again no claw back as far as I am aware however the trail will probably be transferred to the new broker on that particular loan...still better than a claw back for her and she keeps the trail on the loans she did do for you that you aren't touching. If you want to do this you have to be sure the broker submits it as an increase or it will be deemd a new loan and may trigger a early pay out fee for you and a claw back for her.

ps I would like to say also its great to see soemone who doesn't have a completly mercenary approach to their affairs. Refreshing!

Cheers,

 

[Rolf Latham]

If you want to do this you have to be sure the broker submits it as an increase or it will be deemd a new loan and may trigger a early pay out fee for you and a claw back for her.

More to the point here, be aware that even if it were a new loan, the new broker will only be paid on the new money, while the old broker gets done over

Very much a lose lose, so follow Marty's advice


ta
rolf

 

[jrc77]

More to the point here, be aware that even if it were a new loan, the new broker will only be paid on the new money, while the old broker gets done over

Very much a lose lose, so follow Marty's advice

ta
rolf

Rolf/Marty,

Just to clarify are you saying that if I get a new loan account through my "new" broker secured against my PPOR (which already has 3 loan accounts secured against it), they will stop paying commissions on the existing loans to my old broker, and then pay commission only on the new loan to the new broker?

Regards,

Jason

 

[Rolf Latham]

A separate NEW facility that retains all the old loans will not have any impcat on the existing loans, broker or comms

ta
rolf

 

[ashalim]

Hi Rolf,

So if I have a Westpac Rocket Investment Loan and I want to create an LOC loan when there's extra equity in my IP, I can do this without impacting the current loan and commission to my old broker?

Regards,
Ash

 

[Rolf Latham]

Hi Ash

Thats correct

ta
rolf