What is responsible lending and why should it matter to you?

You don't just need a home loan, you need the right home loan for your situation and requirements – and that’s called responsible lending. But these days, many people are trying the 'do it yourself' approach - or trying to save money by logging on to one of the new comparison websites or services.

Firstly, 'DIY' is only feasible if you have an extremely good grasp of the mortgage market. And even if you have done some homework, it is not a good idea when it comes to loan applications. A loan could be the biggest financial commitment you ever make, so it's crucial to clear all the hurdles and get it right.

Responsible Lending

Those lending money must comply with responsible lending conduct obligations, ensuring that any proposed credit contract is not "unsuitable" for the consumer.

ASIC stipulates that credit representatives, are responsible for lending obligations including;

  • make reasonable inquiries about the consumer’s financial situation, and their requirements and objectives;
  • take reasonable steps to verify the consumer’s financial situation; and
  • make a preliminary assessment (if you are providing credit assistance) or final assessment (if you are the credit provider) about whether the credit contract is ‘not unsuitable’ for the consumer (based on the inquiries and information obtained in the first two steps).

But it's also necessary to be responsible on your own behalf. Getting on the phone with a bank without shopping around would be like walking into a used car yard and asking the salesman 'is this the best car on the market'? You wouldn't necessarily get an entirely honest answer, or a friendly recommendation to try the car yard down the road.

So it makes sense to do some 'shopping around', perhaps by going to one of the comparison websites or services that compare interest rates - because surely getting the best possible deal on rates is the most important factor when it comes to loans? Not necessarily.

Loans are complicated

Loans are much more complicated than just the rate of interest, and the comparison sites don't take into account many of the other crucial factors that will affect you as you pay it back. The comparison sites, remember, are mainly just automated services - they're not human beings you sit down with face-to-face. For that reason, many lenders are sceptical of those who have applied for a loan using the 'DIY', or loan comparison service, route.

That's why going to a mortgage broker like Mint Equity is the best choice. A broker has a direct line to a vast and quality range of home loan products, having established relationships with lenders over a period of years. And it will not just be the four major banks, but multiple regional and second-tier lenders that you did not know even existed that could be just the right fit for you.

Knowledge and service

It is not just this direct line to lenders that will help you, but the broker's knowledge and service. They will often work after hours for you, chase up your applications and solve administrative problems. And they will also ensure not only that you are able to afford the loan, but whether it's right for you. A Preliminary Assessment will document and check not just your financial and personal situation, but match your loan with your precise requirements and objectives.

But you'll have to pay for all this personal service, right? Again, not necessarily.

While DIY or the 'click and flick' services may entice you because of the lower cost, many brokers - like Mint Equity - actually provide a free service.

And even in the case of alternative options that might give you an attractive instant cash-backs or a discounted rate today, going to a mortgage broker will probably save you money in the longer term. Because they deeply understand the range of loans on the market, they can tailor a solution that is not just attractive on paper, but is just right for you now and into the future. They also have access to the cash-backs and discounted rates that the lenders provide.

Thousands in savings

Over years, the benefit of a broker who negotiated the best deal for you, including hidden savings like fee and penalty waivers, might save you thousands more than if you had gone it alone.

Remember, it's not just the interest rate itself that matters, but the impact of market trends, whether the loan should be fixed, variable or split, whether it makes efficient use of offset accounts, and a myriad of other factors that only a mortgage broker fully knows and understands.

Not just that, a broker will be able to tell if a borrower's ambitious loan plans are actually realistic, responsible and in sync with their actual best interests and lifestyle plans. 

To learn more about how Mint Equity can help, contact Zac on 02 4340 4847