What is a Finance Broking Contract?

One form that�s in your interest

Most of us hate filling out and signing forms. But a piece of paper that home buyers may have to sign is designed for their own protection.

If you decide to consult a mortgage broker to help you choose an appropriate loan, many will now ask you to sign a written agreement which provides the details of the service the broker is going to provide for you.

Try not to sigh resignedly: �Do I have to?� You should because it�s in your own interest.

In fact, in NSW and Victoria, it is now the law. Brokers dealing with residents of both States are required to provide the borrower with a Finance Broking Contract (FBC) before they commence working on your behalf. Several mortgage broking firms, particularly those that operate across State borders, have introduced the agreements as standard practice. It is only a matter of time before every loan through a broker is subject to such a written agreement, as State governments are cooperating to develop uniform mortgage broking legislation.

What exactly is a Finance Broking Contract (FBC) or Agreement?

A FBC has been designed with best interests of consumers in mind. It ensures that when you give the go ahead to your broker to apply for a loan of your behalf that you have done so fully informed of all loan elements, fees and charges, as well as how the mortgage broker has helped you reach as decision and what commission the lending institution will pay them if your loan is approved.

There are four sections to the document.

• A summary of the main terms of the loan you are seeking i.e. the loan amount, the term of the loan, loan repayments, interest rate, and any special loan features such as a redraw facility or internet banking.
• A list of the broker�s panel of lenders. Your mortgage broker will accredited with a variety of lenders. When comparing the loans between different lenders� products, the comparisons will be between those on this panel. This ensures you know who your broker is �shopping� with on your behalf.
• A list of any fees or charges you will have to pay. Most brokers will not charge you a fee for their assistance as they are remunerated by the lender if the loan settles. All lender commissions to the broker will be listed in the FBC.
  
  If a broker is charging for their service, their fee will also be disclosed in the FBC along with when the fee is applicable such as applicable only if the loan settles, or applicable regardless of if the loan settles.
  
  The lender may also charge you one-off or recurring fees and charges for the loan such as an establishment fee or valuation fee. These fees will also be listed in the FBC.
• A clause which allows the broker to provide your information to a third party (i.e. a lender, mortgage insurer or valuer) for the purpose of having your home loan approved.

You should read the FBC thoroughly before putting pen to paper to ensure there has been no misunderstanding or confusion on either side.

What if I sign and then change my mind?

By the time you sign the agreement you should be confident that if the loan applied for is approved you will proceed to settlement. However, if you do change you mind for any reason your signature on the document does not commit you to accepting the loan. Before you sign the FBC you should ask your broker if they will charge you any fees if you do not settle on the loan. Remember, these costs must also be detailed in the contract as per point three above.

_{Source: MFAA}