Hiring a mortgage broker is a concern for some people. Given the importance of a mortgage, clients have high expectations of mortgage brokers. As such, brokers need to have a mortgage agreement to manage how they provide their service. Below, we set out what a mortgage broker should include in their mortgage agreement.
1. Description of Services
Your mortgage agreement needs to detail what services you will provide to a customer and those that you will not. It is important that this clause is precise as well as clear and accessible to those with little financial knowledge.
The mortgage contract needs to detail the extent of your negotiation on behalf of the client with banks, credit unions and other credit providers. You should let the client know if they can expect a particular number of options. It’s also sensible to include any relevant timelines for the client so that they understand the length of the process.
You must also specify that you will provide clients with a written agreement about their chosen loan. Detail what information it will include, for example:
- Information about the loan itself;
- The applicable rate of interest; and
- Any fees payable (including broker fees, commissions, fees to set up the loan and any early exit fees).
The majority of legal disputes involving mortgage agreements concern its scope. In those cases, both parties had different understandings of the services promised. The more accurate your contract is, the less likely you are to experience difficulty. Be sure to also include details of any and all licences that you hold.
You need to tell a prospective client expressly what fees they can expect to pay if they engage your services. If possible, include a total amount and break that down into its constituent parts. The client then knows what they owe you and why.
Also, you should disclose whether you receive a commission for offering a particular home loan to a client. Although the client isn’t required to pay this fee, it could affect their decision-making regarding all the options you present. Also, you need to tell a customer expressly if you reserve the right to charge a fee if they later refinance their home loan and switch lenders. Your agreement should also specify your terms of payment, for example, if you require payment within 30 days of invoice.
Your mortgage agreement must tell a prospective client about any commissions you receive from mortgage lenders and how it could affect the choices that you present to them. Such a clause ensures the customer is fully informed before engaging your services and selecting a home loan.
4. Limit Liability
Your mortgage contract should limit your liability as much as possible under the law. Of course, clients typically want you to assume as much liability as possible.
Your agreement needs to detail what legal obligations you have and those liabilities you will not assume. For example, you can limit your liability for the conduct of a lender you recommend to a client and with whom they take a mortgage. In that way, you limit the ability of customers to take action against you.
5. Mediation and Dispute Resolution
Your mortgage agreement should provide that in the event of a dispute, both parties must, at first instance, attempt dispute resolution and mediation through a dispute resolution clause. Dispute resolution is more cost-effective than legal action, can prevent the need for legal action and may lessen any hostility between the parties.
You need to detail those circumstances under which a party can terminate the agreement. Also, be clear about how that would affect payment of fees. For example, if you will require payment in full or for services rendered to that point.
If you are a mortgage broker and have any further questions or need assistance drafting a mortgage broker agreement, get in touch with our contract lawyers on 1300 544 755.