How The ‘Best Interest Duty’ Can Help You Find The Best Home Loan

The Best Interest Duty (BID) for mortgage brokers came into effect
1 January 2021.

The Best Interest Duty and related obligations ensure that you
receive advice that meets your objectives, financial situation and
needs, and that we act in your best interests when providing this
advice.

What does that really mean for you?

In short, it means that your mortgage broker (us!) must legally
comply with the BID to ensure that you secure the best home
loan product that is most appropriate for your situation.
It also means that not much will change for us because we have
always put our clients’ interests first.

More about BID

The Best Interest Duty guidelines state that while price will always
be a determining factor, in some cases the cheapest price may
not be the best outcome.

Some circumstances may mean that the benefits provided by
certain features might outweigh the importance of cost.

Some clients may have a strong preference for a loan feature that
may not be in their best interests. For example, someone may
insist on an interest only loan, when in our view it is not in their
best interest.

In this case, we are expected to make reasonable efforts to
explain why these features may not be appropriate or offer good
alternatives to help them make an informed decision.

Other home loan considerations where we will act in your best
interests include:

When refinancing – “the consumer may benefit from being
made aware of any potentially minor cost savings associated
with refinancing, with an explanation of when the cost savings
would exceed the refinancing expenses.”

Considering promotional offers – “any promotional offer
that is quantifiable will be considered as part of the cost of the
credit product… it is important to be aware of eligibility criteria,
exclusions and time limitations.”

Comparing interest rates – for example a “fixed rate loan with
a substantial break fee could be detrimental to a consumer who
wants flexibility to refinance.”

Deciding on account structure – “an offset account may not
be relevant to a consumer whose plans do not include repaying
additional amounts (and may be detrimental if there is an
additional cost for the feature).”

You will have the assurance that we must place your interests
ahead of our own as set out in the Conflict Priority Rule
guidelines. Conflict priority requires mortgage brokers to prioritise
the consumer’s interests in the event of a conflict of interest.

For example

Linh and Zelda approach a mortgage broker for a home loan.

Based on the information provided, the broker sourced two very
similar loan products:

Lender 1 – A home loan package with an offset account, but NO
annual fee.

Lender 2 – A home loan package with an offset account but
includes an annual fee of $149.

The broker recommends to the client to proceed with Lender 1.

However, Lender 1 offers a higher commission to the broker than
lender 2 for the same size loan.

Commentary

In prioritising the consumers’ interests, it IS POSSIBLE that the interests
of the consumer and the broker align – even if the broker is paid more
commission. In this situation, the fact that there is an additional
benefit for the broker DOES NOT indicate that the broker did not
prioritise Linh and Zelda’s interests.

If the situation was reversed, where Lender 2 offered the broker more
commission, AND the broker recommended Lender 2 over Lender 1,
then the Lender 2 product would be inconsistent with the conflict
priority rule, and therefore becomes a conflict of interest – thus not
operating in the best interests of the consumer and not legally
complying with BID.

Best Interest Duty does NOT apply to any lenders!

A lender may offer you products, but a mortgage broker
MUST act in your best interest.

Lenders have no legal obligation to act in your best interest, but
we do!

Looking for a home loan? Contact us today to see how we can
assist you.

What The Banks Can’t Offer – But We Can!

What a difference a year makes. After the turmoil of lockdowns
and employment uncertainty around this time last year, things are
looking up for many of our clients – in more ways than one!
26% of Australians say their families are now ‘better off’ financially
than this time last year and some recent auction clearance results
are nearly 90%.

We suspect we will continue to experience a level of uncertainty
as borders and restrictions ease and then tighten again, however
many of our clients are taking advantage of the current
opportunities to buy their first home, invest or upgrade. These
are the key reasons that you could too…

• First home buyer incentives, discounts, cashbacks and
concessions are available

• Interest rates remain at an all-time low

• Consumer confidence is lifting

• Simpler lending rules for home loans are expected shortly

For many Australians who are considering taking advantage of
the current opportunities to secure a home loan at the lowest
rates in history, the choices and process itself can be a little
daunting.

If you don’t have a good understanding of the financial services
industry or the many products and features available for home
loans, it can be difficult to decide on the right property finance
for you. Plus, mortgage applications can sometimes be confusing
and time consuming. But not for those using a mortgage broker.

It’s all about your best interests – one more reason to
use a mortgage broker.

The Best Interest Duty (BID) for mortgage brokers came into
effect on 1 January 20213.

The Best Interest Duty and related obligations ensure that you
receive advice that meets your objectives, financial situation and
needs, and that we act in your best interests when providing
advice.

This new duty gives you additional peace of mind knowing that
we are now legally required to act in your best interests.
Did you know that Best Interest Duty does NOT apply to any
banks or other lenders?

ASIC, the industry regulator, released Regulatory Guide 273
which sets out obligations for mortgage brokers under the Best
Interest Duty.

The Best Interest Duty obligations:

• are intended to more closely align mortgage broker practices
with consumers’ expectations

• should improve the support, guidance and communication
provided to consumers throughout the credit assistance
process

• should lead to a higher quality of credit assistance being
provided

The new obligations include a duty for mortgage brokers to
prioritise the interests of clients over their own – which we have
always done anyway!

Products recommended by us must be in your best interests
and the reasons for product selection should be recorded and
explained to you.
While costs (interest rates, fees and charges) are often a major
determining factor when deciding on a home loan, the cheapest
may not always be the best outcome for the borrower.

ASIC’s BID guidelines state that some consumer
circumstances will mean that the benefits provided by certain
features may outweigh the importance of cost.

While some people may value access to an offset account,
others may prioritise faster approval time. Mortgage brokers are
expected to exercise judgement in considering the relevance
of these factors with reference to the consumer’s individual
circumstances.

Regardless of legislation, how could a bank or other lender always
‘act in your best interest’, if they can only offer you a limited
number of products?

The ANSWER is… They can’t!

A lender may offer you products, but a mortgage
broker MUST act in your best interest.

We have always sought finance options for our clients that best
suit their own individual circumstances and work in their best
interests, so don’t expect anything to change from us. We will
keep focusing on doing the right thing by our clients.

Not only are market conditions and interest rates tempting
our clients to buy, but there is now the added confidence that,
amongst the other benefits of using a mortgage broker, we
are legally obliged to offer finance options that are in your best
interests.

To find out how you could secure a better mortgage deal that
MUST be in your best interest – read our guide here.